News Release

OPM Awards Flexible Spending Account Contract to SHPS, Inc

Washington, D.C. -- The U.S. Office of Personnel Management has awarded a contract to SHPS, Inc., for the administration of a flexible spending account program for federal employees.

Flexible spending accounts (FSAs), such as the type that will be available to employees of Executive Branch agencies, are employee-funded accounts that can be tapped by account holders to pay for medical expenses that are tax deductible, but not reimbursed by any other source, as well as dependent care costs. Contributions to the accounts come from an employee’s pre-taxed salary; the government does not make a contribution.

In awarding the contract, OPM concludes an important start-up phase of the flexible spending account program, which agency Director Kay Coles James announced late last year and that builds on initiatives to offer flexible benefits to the federal work force.

"With the FSA program set to begin this summer, another major milestone has been achieved by the Bush Administration in making federal benefits and compensation more attractive to job seekers who may be considering their career options," said James. "The program also will help us retain our existing cadre of dedicated professionals who work for America."

SHPS, Inc., headquartered in Louisville, Kentucky, manages nearly one million FSA and participant-reimbursement accounts nationally. Its list of clients includes state and local governments, and more than 70 Fortune 500 companies.

The availability of FSAs in the private sector is commonplace. With FSAs, federal employees will extend their disposable income by using pre-tax dollars to pay for dependent care, or tax-deductible medical expenses that are not covered by an FEHB Program plan or any other source.

Under the program to be managed by SHPS, Inc., employees will contribute through payroll deductions to a health-care FSA, a dependent-care FSA, or both. OPM’s plan would allow employees to contribute a maximum of $3,000 per year^** to a health-care FSA; contributions to dependent-care FSA would be allowed up to $5,000 per year, the maximum allowed under Internal Revenue Service regulations.

Dependent-care FSAs can be used to pay dependent-care expenses only when such care is necessary to enable the employee to work. Expenses can be paid for children up to age 13 and for adults who qualify as dependents under IRS regulations.

Under current law, funds remaining in an FSA account at the end of a calendar year are forfeited. President Bush supports legislation now in Congress that would permit annual rollovers of up to $500 for each established health-care FSA or dependent-care FSA.

"Fundamentally, federal employees -- like all educated consumers -- are in the best position to determine how health-care dollars should be spent for themselves and their families," said James. "FSAs empower them to do so.

"Used wisely, flexible spending accounts are effective financial management tools that can stretch the disposable incomes of account holders and ensure that funds are available, when needed, to pay for out-of-pocket medical expenses or the dependent care costs of a child or parent," added James. "I am confident that federal employees will benefit from participation in the FSA program, and they, in turn, can be sure that their accounts are being professionally managed by a company experienced with participant reimbursement accounts."

James noted that the overall popularity of FSAs and the number of federal employees who have expressed interest in the accounts played a key role in her decision to authorize the benefit.

SHPS, Inc. administers FSA programs for federal judicial branch employees and many private sector companies.

In 2000, a program known as Premium Conversion was made available to federal employees. Like FSAs, Premium Conversion allows employees to use pre-tax dollars to pay for a workplace benefit, in this case health insurance.

**The maximum $3,000 contribution to a health-care FSA applies to any full year of the program’s existence. In 2003, the maximum contribution may be prorated and based on the official start date of the FSA program.

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OPM oversees the federal work force and provides the American public with up-to-date employment information. OPM also supports U.S. agencies with personnel services and policy leadership including staffing tools, guidance on labor-management relations and programs to improve work force performance.

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