Switch from HSA/Limited FSA to FSA only

Question

In 2016 I had a High Deductible Health Plan/HSA and a Limited FSA through my employer.

For 2017 during our open enrollment I decided to not use a HDHP, and chose a PPO Plan. In addition, I selected a full FSA for 2017.

The administrator is telling me that my FSA for 2017 is a Limited FSA and thus I can only use it for vision and dental. They seem to be telling me this is the case since my HSA is still open.

Are there any rules from going from an HDHP with HSA + Limited FSA one year, to a non HDHP + Full FSA the following year?

Answer 1

IRS Pub 969 has all the information pertaining to HSAs and FSAs. This particular section seems to be what the administrator is looking at. Note that this applies to those that are still covered by a HDHP, so not your situation.

The administrator may be confused/mistaken and is thinking that you're still eligible and allowed to contribute to the HSA, and therefore you can not have a full FSA. I would tell them:

1. Your health insurance is no longer a HDHP
2. Since you are not covered by a HDHP you are no longer eligible to contribute to the HSA.
3. Given 1 and 2, you should be able to get a full FSA

Note that even if you are not "eligible" for an HSA you can still take distributions from the account, you just can't contribute to it.

If they still give you grief then I would follow @Imn123's advice in the comments and rollover your HSA to another HSA that is not visible to them.