FSA, HRA fund-transfer rules issued

WASHINGTON—U.S. Treasury Department issued guidance Thursday that details how employers can administer a provision in a 2006 federal law that allows the transfer of unused balances in both flexible spending accounts with a grace period and health reimbursement arrangements to health savings accounts.

In general, the guidance requires that employees must elect such rollovers and that the year-end balance be frozen by the end of the year, while the funds must be transferred within two and a half months after the end of the plan year. The transfer must result in a zero balance in the FSA or HRA.

Under a special transition rule for 2006 only, FSA or HRA balances would not have to be frozen at year-end, while the election and transfer process would have to be completed by March 15, 2007.