Guest Red Posted January 21, 2005 Report Share Posted January 21, 2005 It may be helpful to consider the differences in treatment of FSA contributions by the IRS and the DoL. The IRS treats contributions as a straight salary reduction: you've voluntarily asked your employer to pay you less, in exchange for a promise of benefits of equal monetary value over the course of the plan year. By following the guidlines of Section 125, you've avoided constructive receipt, and, as far as the IRS is concerned, never got this money at all. This is an important point: you never had the money. It's not yours, it's your employer's, because you asked for an anti-raise (a "lower"?) in exchange for non-taxable benefits. The employer can do whatever she likes with the money you decided not to be paid, since it's just part of her general assets. The DoL, in very sharp contrast, considers FSA contributions to belong to the participants; regardless of how the IRS deals with the monies for tax purposes, the DoL requires employers to treat contributions as participant contributions. Despite the non-enforcement of the ERISA trust requirements under Technical Release 92-01, these are still plan assets (Herman v. Jackson County Hospital, e.g.), whether they are ever actually separated from the employer's general assets. As a practical matter, without a trust, there's no tracking which particular dollar in the employer's general assets belong to which participant, so there appear to be few actual limits on what the employer can do with the money that's saved (real-world, employers often deposit an amount equal to the employee's salary reductions on a pay period by pay period basis in a checking account to cover the plan's expenses, but there's no requirement to do so). Nonetheless, if you blow all your assets and have nothing to pay back the particiapants' salary reductions, you're going to have a major problem with the DoL. Hope this helps. Link to comment Share on other sites More sharing options...
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