A cafeteria plan will not permit employees to carry over unused contributions under DCAP or health FSA from one year to another. Under the use-it-or-lose-it rule, as of the end of the plan year a participant will have a extended benefit period of 2 months and 15 days to use their benefits.* The effect of the extended period is that the participant may have as long as 14 months and 15 days to use the benefits or contributions for a plan year before those amounts are “forfeited” under the “use-it-lose-it” rule.
Run-out period. Most health FSAs and DCAPs typically give participants a month or two after the close of the plan year to submit reimbursement requests for expenses incurred during the plan year. The plan document should specify the run-out period. Neither Code § 125 nor the § 125 regulations provide guidance on run-out periods (including the permissible duration of the run-out).
*This happens if the employer chooses to have this option. If not then the
participant will only have 12 months to use his or her benefit.
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