Is a teminated employee entitled to reimbursement from a Health FSA?

[Guest GARNETT]

Consider the following:

An employee elects, prior to the beginning of the plan year, to contribute one thousand two hundred dollars ($1,200) to a Health FSA at the rate of one hundred dollars ($100) per month. The employee incurs reimbursable expenses of two hundred dollars ($200) in February which are reimbursed to the employee in March. Additionally, the employee incurs reimbursable expenses of seven hundred dollars on June 2. However, the employee's employment is terminated on June 30, at which time the employee has only contributed six hundred dollars ($600) to the Health FSA. Further, the employee's June 2 expenses have not been reimbursed as of the date of the employee's termination of employment.

Is the employee entitled to be reimbursed for the entire amount of his June 2 expenses ($700), even though he only contributed six hundred dollars ($600) to the Health FSA prior to his date of termination, and he was already reimbursed two hundred dollars ($200)?

[Guest CLKeown]

The answer is, YES.

For a Health Care FSA you are required to pay all qualified/eligible expense reimbursements up to the annual election amount (regardless of the actual amount contributed), when the request is made.

In the case of the terminated employee, so long as the expenses were incurred prior to their termination date, and were otherwise eligible, you are required to reimburse them.

This is the funding risk that employers take when the offer a Health Care FSA. Which is of course off set by the employees' risk of forefiture.

Now, on a Dependent Care FSA you are only required to reimburse eligible expenses up to the amount contributed.

Hope this helps,

Carole

[Lisa Hand]

If the expense is prior to their termination from the plan, then valid incurred expenses must be reimbursed up to the annual election.

****Sorry guys about the orginal posting, I was scanning the work group too fast and misworded my response. Sorry for any confusion.

[This message has been edited by Lisa Hand (edited 06-10-2000).]

[This message has been edited by Lisa Hand (edited 06-11-2000).]

[Guest GARNETT]

Lisa:

Can you provide me with a citation to the Code, ERISA, or an administrative regulation supporting your position? Thanks.

[Lisa Hand]

Prop. Treas. Reg. 1.125-4, Q/A-7

[Guest SandiY]

I was trying to look up your cite - but couldn't find it. All I could find was Temp Treas. Regs 1.125-4T, Example 7 - which doesn't seem to match the subject matter. Help!

[Lisa Hand]

SandiY:

The Employee Benefits Institute of America publishes a great Cafeteria Plan legal guide which includes all of the pertinent regulations. They also have a great web site, www.ebia.com

Also, please take a look at the revision on my earlier response which was incomplete, as well as Joe Priselac's response to another recent similar question. The key issue is the period of participation and when the expense was incurred.