In addition to saving money, as this employer experienced, seeding also buys employee goodwill toward the FSA program. If the employer is willing to contribute to the account up-front, employees are more willing to do the same with their own dollars, which in turn adds to the tax savings for the employer. While some companies use seeding as an outright cost containment measure, others use it on a temporary basis to increase participation. For example, a multiple location service organization with an existing FSA had 5,100 eligible employees, but only about 100 who were participating. Matching is another method employers are using to increase participation in FSAs.
Some companies even match contributions dollar for dollar up to a predetermined maximum.
Funds left over in the FSA at the end of the year can revert to the employer's general assets, and then be rolled over into the next plan year, offsetting some of the up-front costs of seeding or matching employee FSAs. Add this to the tax savings realized from higher employee participation, and the FSA becomes almost budget neutral. They are also effective methods for easing employees into a full flexible benefit plan concept, which is why some companies utilize FSAs as stepping stones to building full cafeteria-style benefit plans. Of course, seeding and matching won't solve all budget problems, and they are not ideal for every situation. However, employers that want to increase participation in the FSAs, while recognizing the need for an effective way to control the rising costs of their overall benefits package, will find that seeding and matching are fairly simple ways to motivate employees to at least try FSAs on for size.