United States 

Office of 

Personnel Management

The Federal Government’s Human Resources Agency 

Benefits Administration Letter 

Number: 03-805 Date: June 19, 2003 

Subject: Billing Process for FSA Fees Paid By Agencies 

FSA Administrative Fees 

As announced in BAL 03-804 on June 16, 2003, OPM and OMB have concluded that, assuming 

no specific constraint in a particular agency’s authorizing or funding statute, agencies may use 

their tax savings to pay FSA administrative fees for their employees. 

The negotiated administrative fees, ($4 per month per participant for a health care FSA [HCFSA]; 

1.5% of the annual allotment per participant for a dependent care FSA [DCFSA]) can be paid 

from the savings your agency will gain by not contributing towards FICA and Medicare taxes on 

allotments that your employees make to a HCFSA and a DCFSA. 

On June 13, 2003, OPM Director Kay Coles James sent a memorandum to heads of departments 

and agencies urging the payment of fees. It is important that Federal employees be allowed to 

keep their hard-earned money. We strongly encourage you to pay the modest FSAFEDS fees 

on behalf of your employees. It’s the right thing to do. You may wish to note that our analysis, 

presented below, has shown that even after paying fees, agencies will still accrue savings. 

Analysis on Agency Savings 

Our Actuarial Group used distributions of actual FERS and CSRS employees and calculated an 

effective tax avoidance rate of 5.3%. This took into account the 110,000 FERS employees for 

whom there would be no Federal Contributions Insurance Act (FICA) tax avoidance because 

their salaries are over the FICA cap. 

Perhaps an easy way to understand that agencies accrue savings from avoiding Health Insurance 

(HI) (1.45%) and Old Age Survivors and Disability Insurance (6.2%) taxes is through a breakeven 

analysis. 

Using actual population distributions, 31% of the payroll is CSRS where only the 1.45% HI tax 

applies and 69% is FERS, where the 1.45% HI and 6.2% OASDI taxes apply, produces an 

average tax avoidance rate of 5.3% (after adjusting for 110,000 FERS employees whose salaries 

exceed the FICA wage cap). How much would the average employee have to elect to save in a 

health care account for an agency to recoup the $24 in 2003 fees, and the $48 in 2004 fees? The 

answer is $452 in 2003 and $904 in 2004. The amount gets smaller as the proportion of assumed 
 

 

 

 

 

 

 

FERS or CSRS offset employees is increased for FSA purposes, but it’s easy to see that breaking 

even is almost assured based on average employee amounts elected in existing FSA programs 

presented below. 

With respect to dependent care accounts for the CSRS employees the agencies lose .05% of 

whatever is elected (1.45% in HI saving less the 1.5% fee). But for employees subject to full 

FICA, the agency saves 6.15% of each dollar allotted to a dependent care account. 

For an agency to break even on the fees it pays, what proportion of dependent care account 

dollars must be for FICA employees for the agency to breakeven? The answer is just .8%. Of 

course, FERS employees are younger and more likely to establish dependent care accounts (up 

to $5,000 annually), so breaking even is a certainty. 

Data from another Federal agency that has an FSA Program indicates that in 2003, an average of 

$1752 was being allotted by health care account holders and $3622 by dependent care account 

holders. Using our 31% CSRS assumption and these averages, an agency would save, after 

expenses for fees, $44.94 for each health care account, and 5.35% of each dollar put into an 

dependent care account ($193.78 per account based on 2003 data) in 2003 by employees subject 

to FICA taxes. 

Billing Procedures 

We’ve included an attachment showing the billing process by SHPS. This is a straight invoice or 

billing process and will require NO system changes. Agencies will be billed after the allotments 

taken from the second pay date in July are received by SHPS. That initial allotment file exchange 

will confirm with SHPS and the agencies the number of employees who have valid FSA accounts 

and the bill will be based on that number and the amounts elected. Once the initial invoice is 

issued, agencies will only receive an invoice if new employees (not previously enrolled in the 

Program) enroll in FSAFEDS. 

Should you have any questions regarding this process please contact Jennifer Hirschmann at 

202/606-3711 or jxhirsch@opm.gov. As we noted in BAL 03-804, all agencies must inform OPM 

of their decisions on whether or not to pay the fees no later than June 27, 2003. Please use the 

attached Invoicing Procedural Process form to indicate your agency’s decision. As indicated on 

the form, all responses should be faxed to 202/606-2023. 

Frank D. Titus 

Assistant Director 

 for Insurance Services 

Attachments 

2 
 

 

 

 _____________________________________ 

 

Attachment 1 

Please provide the following information after reviewing the SHPS Invoicing 

Procedural Process document: 

Agency: Contact Name: 

Phone Number: Fax Number: 

Email: Mailing Address: 

Will your agency be paying FSA fees on behalf of your employees? 

� YES (Please complete the remainder of this form) 

� NO (Please sign and return form. You do not have to complete the 

sections below) 

Choose one method listed below for receiving the Invoice from SHPS: 

Preferred Method of Invoice Receipt 

Email Address for invoice to be sent: 

� Email 

Preferred Method of Invoice Receipt 

Mailing address for invoice to be sent: 

� Regular Mail 

Choose one method listed below to indicate how you will remit payment to 

SHPS: 

� Check Payment � ACH Payment � Wire Payment

Signature 

Please sign and fax form to Jennifer Hirschmann at 202/606-2023 

All agencies must respond no later than June 27, 2003