FSA checks that have not been cashed.

[Silver70]

 

Wondering how others handle this. We have outstanding FSA reimbursement checks through our third-party administrator from current and former employees. These are reimbursement checks that have been sent to the employee and the employee has not cashed them. These can go back years, and involve employees that no longer work for us, or may also be deceased. What are the options that we can do? How have others handled this?

1. Are we able to put a time limit on these, and if they do not cash a reimbursement check that they forfeit the reimbursement?

2. If the check is reissued, we have no way of knowing if the employee’s address is current, so it could just be another check written that goes uncashed.

3. Is there a point where the TPA writes off the uncashed funds and returns the funds to us?

4. Are there any IRS regs that address this?

 

I’d love to hear some suggestions.

 

Thanks,

John

[Brian Gilmore]

I consider including the forfeiture approach for uncashed checks in the terms of the cafeteria plan document to be the best practice here. Cafeteria plans often provide that if any benefit checks are not cashed for a set period (e.g., the end of the plan year following the plan year in which the expense was incurred), the funds are forfeited to the plan. 

Uncashed benefit checks could eventually be subject to state escheat laws if they remained uncashed indefinitely. The forfeiture approach should address the issues you described above and the possibility of state escheat laws applying.

There are strict rules on how to handle experience gains from forfeitures.  Here's an overview: https://www.theabdteam.com/blog/fsa-experience-gains-from-forfeitures/