Can a participant with a negative balance in his Medical FSA prior to

[Guest Carolyn Barnard]

A participant elects $2000 in a medical FSA at the beginning of the plan year. He claims expenses in excess of the $2000 within the first month of the plan year. The next month, he goes on FMLA. He revokes his election as his FMLA is an allowable family status change. When he comes back from leave, he does not elect to resume his medical FSA contributions. Does the company have any recourse, since they are out the bulk of the $2000? I can't find anything on this except that the company has to allow him to come back in. What if he chooses not to come back in? Can the company make him?

[Guest Joe Vasko]

Just becaus an individual has a family or medical leave does not necessarily entitle them to change their Medical FSA. Changing an election of either a Medical or Dependent FSA must be consistent with the change in status.

If changing the election is consistent with the change in status, then I believe the company would be on the hook. I would ask that the moderator intervine with this question.

[KIP KRAUS]

I agree with Joe. Unless the employee has a qualified change in status that would otherwise allow him to revoke his FSA election, I'd require him to continue payroll deductions. FMLA leave, in and of its self does not mean he had a change in status under the FSA plan.

Sounds like a scam to me.

[Mary C]

Although the situation does feel like a scam, remember the 125 regs allow an employee to cancel pre-tax coverage when going on an unpaid leave. AND FMLA regs allow the employee to cancel or not pay for any or all benefits while on an FMLA leave. So I feel that the cancellation is certainly permissable in this event. Whether or not he has an opportunity to change his election again when he comes back should be handled the same way you handle other benefits canceled while on FMLA. If you customarily reinstate automatically, he should be made to resume the same level of contributions as before the leave.

By the way, FMLA regs also allow the employer to recoup any usually employee paid premiums the employer may have paid for the employee while he was on leave upon his return. Q&A #155 under Section 125 Q&A on this site - How can a participant remain in a Medical Reimbursement Account while on a leave of absence? - talks about how to handle contributions to the FSA while on leave.

[Guest Carolyn Barnard]

Since posting my original question, I have since found guidance citing DOL Reg. Section 825.214(a)...Upon return from FMLA, reinstatement is at the employee's election and under no circumstances may an employer require an employee whose coveraged has terminated while on FMLA leave to reinstate coverage under a health FSA upon return from FMLA leave. Essentially, they may be permitted to reinstate, but may not be forced to.