As the number of single heads of household and two working parent families grows, more Americans are struggling to balance work and family responsibilities. Many want government to do more to help people. Often, lawmakers debate proposals to mandate paid leave benefits or create new government programs to fund time off. These debates are worth having, but there’s another route to ease burdens on working families: encouraging and rewarding saving.
Flexible Spending Accounts (FSAs) are one vehicle that policymakers should consider modernizing to better support workers. Currently, these tax advantaged savings accounts are available in a majority of large companies. However, only a small share of workers use them because of the restrictions on allowable uses of the funds and the requirement that funds must be used each year, or risk being forfeited.
Expanding FSAs so that workers can save more and use funds to cover more critical expenses—including to make up for income lost during unpaid leave from work—and eliminating the “use-it-or-lose-it” provision would increase participation and make these accounts a vital tool for workers. By making it easier for workers to prepare for critical expenses, FSAs would reduce reliance on safety net programs and increase financial security for Americans. Mandating that employers provide paid leave benefits and creating a paid leave entitlement program have significant drawbacks, such as raising employment costs and discouraging hiring. In contrast, expanded FSAs make time off more affordable, while preserving flexibility and encouraging work and saving, without these unfortunate unintended consequences.
Policymakers should prioritize modernizing Flexible Spending Accounts.