Uniform Coverage Rule in FSA

[LRDG]

The uniform medical FSA coverage rule does not prohibit a plan from operating in a manner that requires all terminated employee participants to continue FSA contributions post-employment, irrespecitve of claims incurred. I agree with the previous poster regarding Harry Beker's comments on this issue.

[QDROphile]

OK, now I would like to see some reference to Harry Beker's comments in a prior post in this thread. If you are going to take an unconventional position, please do a better job of presenting it. Or perhaps I have such a blind spot I cannot even see words on the page.

[leevena]

JSimmons. I have searched and reviewed a few of Harry Beker's documents on line and cannot find anything that confirms your comments. I did find a document developed by the Employee Benefit Research Institute (ERBI) dated October 2003, that clearly states the employer cannot go after the over spent funds.

The link is http://www.ebri.org/pdf/publications/facts/1003fact.pdf please see the 5th bullet point. It states that, "However, because of the uniform reimbursement requirement, if an employee uses the entire amount in the FSA before the end of the calendar year and leaves employment with that employer, he or she does not have to reimburse the employer the difference between what was contributed, up to that point, and the amount used."

Again, I am not an expert in this benefit plan, but did I read something incorrectly? Or was there a change made after October of 2003?

[Guest mjb]

JS: Do you have a citation to your claim that the employer can require that the employee continue making FSA contributions since such a provision would allow the employer to avoid all risk of loss in violation of the regs for FSA under 1.125-2 Q-7. IRS officials have no authority to speak on behalf of the IRS.

[LRDG]

Requiring all terminated employees to participate post employment does not violate uniform coverage rules because it is not tied to prior claims. Employees with no prior claims continue contributions on post-employment basis, as do participants terminating with claims that exceed contributions. Terminated employees continue to file claims and receive reimbursement not to exceed annual elected amounts.

[papogi]

I have seen plan designs where mid-year terminated employees have been required through provisions in the plan document to contribute the rest of the year’s FSA election, and the Thompson manuals that I have clearly show it as a viable plan design option, with care. Let it be it known that I am firmly of the school of thought that this eliminates risk to the employer, and does not abide by the intent of the IRS regulations. With that said, the fact that this thread has continued on shows the reason for the two camps on this issue. The confusion lies on two points already raised. First, 125 regs allow flex plans to apply to former employees. Second, it can be argued that forcing all terminated employees to contribute the full annual election does not run afoul of the rule preventing repayment based on claims experience. Again, I absolutely believe that employers should not force terminated employees to contribute their annual FSA elections, and I believe that this goes along with IRS intent in the regs. Even if you are of the other school of thought, however, and are twisting the IRS regs (I think) to allow employers to recoup, we at least know that this must be in the plan doc and must applied without discrimination. For the original poster, it seems that the provision is not in the plan doc, and it appears to be discriminatory, as well.

[Guest murrr77]

Ok, here is the letter I plan on mailing them tomorrow:

>>

Re: Medical Care Spending Account

Dear ,

I recently received a letter from you stating that before termination of employment this calendar year I had been “over-reimbursed” for my 2007 Medical Care Spending Account. You also requested I reimburse The Company with a personal check payable to The Company for the difference between what I was reimbursed for my qualified medical expenses and what had been contributed via payroll elections prior to my termination.

I wish to make you aware, per Section 125 of the Internal Revenue Code, per the uniform reimbursement requirement, if an employee uses the entire amount of the FSA before the end of the calendar year and leaves employment with that employer, he or she does not have to reimburse the employer for that difference between the amount that was contributed, up to that point, and the amount used.

Thank you,

>>

Any comments?

Thanks

[Guest mjb]

Collecting the FSA contributions from former employees face two obstacles under state law (assuming that FSAs are not subject to ERISA because they do not provide a benefit). First proof of debt. The employer would have to produce a document that the emplyee signed agreeing to pay the contribution after termination of employment which would require more than just a salary reduction agreement to reduce pay. Second state labor laws would prohibit employers from recovering the remaining contributions on the grounds of overpayment of wages because state labor laws prevent employers from recovering employee compensation after it has been paid.

[Jacmo]

Last summer I left an employer with a negative balance in my FSA (I overspent deductions to date). I got a notice from the TPA that I owed the money. I ignored it. I got notices that insinuated I could legally get that overspent money by taking COBRA (basically, paying it back in.) I ignored it. I got other notices--ignored them too. 4 months ago, they finally gave up, although I did get a final accounting in January. I've heard nothing since.

[Chaz]

Even if requiring full year's coverage under the FSA even for terminated employees meets the requirements of 125 (which I doubt), wouldn't the headache of collecting premiums from departed employees make it just not worth it for employers?

[LRDG]

I personally don't like and am not an advocate of the type of plan design requiring post employment participation in medical FSAs. The type of plan is not participant user friendly, and ads administrative burden that I am not interested in.

I am of the opinion that forfeitures and plan sponsor payroll tax savings typically offset claim payments that exceed payroll deductions. I have successfully support the opinion with end of year forfeiture reports dating back to the inception of 125 plans and the uniform coverage rule.

Despite the fact that I wouldn't consider implementing such a plan option, I wouldn't consider excluding it from a presentation to a plan sponsor.