Do you forfeit dependent care balance if you change jobs?

[CaliBen]

Employee had money taken out for dependent daycare from Jan - Mar 09. Child did not start attending daycare until May 09. Employer is denying reimbursement because service was not provided during time employed. Says money is forfeited and goes back to employer. Is this correct? Seems like a way to steal money from employees - terminate before they use their balance.

[Guest jims]

Yes, I believe its correct but you should ask for evidence in the plan document or summary plan description. You usually need to incur the expense while employed for it to be a valid expense. The circumstances are unfortunate that make the employee forfeit. However, (too late now) I believe the employee may have been able to continue the dependent care under COBRA which would have allowed later claim since employee would be incurring an expense while a participant. That's counter intuitive since COBRA is after-tax contributions which removes the tax advantage of FSA. But at least the employee could access the earlier pre-tax contributions.

I need others to chime in because my COBRA continuation method may only apply to healthcare since dependent care only exists so that you can work, but if you terminated maybe you're not working.

[oriecat]

COBRA does not apply to Dependent Care, as it is not a group health plan.

[oriecat]

There is an optional "spend down provision" that allows DCAP monies to be reimbursed after termination, however it is optional so their plan probably does not have it. I would ask for a copy of the document though just to be sure.

[CaliBen]

There is an optional "spend down provision" that allows DCAP monies to be reimbursed after termination, however it is optional so their plan probably does not have it. I would ask for a copy of the document though just to be sure.

Thanks for the info. It seems to me that it is a bit unfair for people to forfeit their money if they are involuntarily terminated. This is a perverse result that the government should fix.

[oriecat]

Well there is a lot of risk and reward on both sides in flex plans.

Why was this person even deferring already if they didn't have someone in daycare yet?

[CaliBen]

Well there is a lot of risk and reward on both sides in flex plans.

Why was this person even deferring already if they didn't have someone in daycare yet?

I can see the risk that you don't use the money within the calendar year, but the risk of forfeiture due to job loss seems extreme and I imagine most people participating in this type of plan are not aware of that risk.

I think they had to make the decision within 30 days of the child being born, but daycare did not start until after 3 month maternity leave.

[GBurns]

I advise checking not only the plan document and SPD, but also any instructions given to this employee.

I know that the insurance coverage quite often requires prompt notification after birth, but I cannot see why there would be similar urgency regarding dependent care. I have not looked to see what the Proposed Treas Regs etc actually state about the timing of such a channge of election based on this change in status so I suggest that you do so yourself at www.changeofstatus.com and see what help you get.

[Bill Presson]

I would be interested in a reasonable solution for this as well. We have participants that have to make the election at the beginning of the year to cover the day care cost for the summer months. If they leave or are terminated in May, they would also lose the entire amount.

[CaliBen]

Thanks for the info guys.

Ex-employee forwarded me the plan docs and SPD last night. States in part:

If you leave the Company for any reason...

Balance in Your Dependent Care Spending Account:

You may use the remaining balance in your Dependent Care Spending Account for expenses you incur

through the remainder of the calendar year.

Ex-employee is going to go back to claims department and try again.

[oriecat]

I would be interested in a reasonable solution for this as well. We have participants that have to make the election at the beginning of the year to cover the day care cost for the summer months. If they leave or are terminated in May, they would also lose the entire amount.

That's why you would add the spenddown provision to your plan.

[Bill Presson]

I would be interested in a reasonable solution for this as well. We have participants that have to make the election at the beginning of the year to cover the day care cost for the summer months. If they leave or are terminated in May, they would also lose the entire amount.

That's why you would add the spenddown provision to your plan.

Thanks. We'll make sure that is included.