What Is a Run-Out Period in Employer-Sponsored Plans?
Understand the run-out period in employer-sponsored plans, its purpose, eligible expenses, and the importance of timely documentation.
Understanding the intricacies of employer-sponsored plans is essential for employees aiming to maximize their benefits. One aspect often overlooked is the run-out period—a timeframe that allows participants extra time after a plan year ends to submit claims for eligible expenses incurred during that year. This feature helps employees fully utilize their allocated funds without financial loss.
Purpose in Employer-Sponsored Plans
The run-out period is a key feature in employer-sponsored plans, enhancing the flexibility and utility of benefits like Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs). By extending the timeframe for claim submissions, employees have additional time to manage their financial planning. This extension is particularly useful for those who delay submitting claims for expenses incurred during the plan year.
For FSAs, which operate under the IRS “use-it-or-lose-it” rule, the run-out period minimizes the risk of forfeiting unspent funds. Employees can use this safeguard to ensure all eligible expenses are reimbursed. Employers also benefit by fostering employee satisfaction and retention, demonstrating a commitment to workers’ financial well-being. Additionally, the extra time can reduce administrative issues related to unclaimed expenses.
Expenditures Eligible for Submission
During the run-out period, employees can submit claims for expenses incurred in the prior plan year. These generally fall into three categories: medical costs, dependent care expenses, and other qualified charges.
Medical Costs
Medical expenses are a primary category eligible for submission. These include co-pays, deductibles, and prescription medications not covered by insurance. According to IRS guidelines, eligible medical expenses must address the prevention or treatment of a physical or mental condition. Payments for services from medical practitioners, diagnostic tools, and prescribed over-the-counter medications are typically covered. Employees should ensure claims are supported by documentation such as receipts and Explanation of Benefits (EOB) statements. Only expenses incurred within the plan year qualify for reimbursement during the run-out period.
Dependent Care Expenses
Dependent care expenses, covered under Dependent Care Flexible Spending Accounts (DCFSA), include costs for daycare, preschool, or after-school programs that enable employees to work or seek employment. To qualify, care must be provided for a dependent under 13 or an individual incapable of self-care. The IRS caps dependent care benefits at $5,000 annually for single filers or married couples filing jointly, and $2,500 for married individuals filing separately. Employees should retain detailed records, including invoices and proof of payment, to comply with IRS requirements.
Other Qualified Charges
Other eligible charges may include expenses such as transportation costs for medical care, like mileage or public transit fares, if they meet IRS criteria. Some employer-sponsored plans also reimburse health-related equipment or supplies, such as crutches or blood sugar test kits, if they are medically necessary. Employees should carefully review their plan documents to understand all eligible expenses and ensure proper documentation is submitted to avoid disputes and maximize reimbursements.
Documentation Requirements
Accurate documentation is critical for claim approval during the run-out period. For medical expenses, employees typically need itemized receipts detailing the service date, type of service, and cost. An EOB from the insurance provider can further validate claims by specifying covered and uncovered amounts.
Dependent care claims require invoices or billing statements from the care provider, including the provider’s name, service dates, and total cost. Proof of payment, such as canceled checks or bank statements, may also be necessary. The care provider’s Tax Identification Number (TIN) is often required for compliance with IRS guidelines.
Employees should retain all documentation for at least three years, as mandated by the IRS. Organized record-keeping, especially through digital storage, can simplify the process and ensure quick access for audits or future reference.
Consequences of Missing the Deadline
Missing the run-out period deadline can result in financial loss. Unsubmitted claims for eligible expenses must then be paid out-of-pocket, disrupting financial planning and increasing personal costs. For FSAs, unclaimed funds may affect taxable income reported on Form W-2, potentially raising tax liability.
Beyond financial implications, missing deadlines can lead to frustration and dissatisfaction with employer benefits, impacting employee morale and retention. Employers should prioritize clear communication about deadlines through reminders and educational initiatives to prevent missed opportunities and foster a positive perception of their benefits offerings.