125 Rules for Re-hires

[Guest loricraun]

I hope someone can help me with the following:

Scenario: A small group in Oklahoma has a Medical Reimbursement account through section 125. An employee makes claims for and is paid the balance of his account early in the plan year and then terminates employment. The employer is unable to payroll deduct the remaining contributions and is out of pocket the “at risk amount”. Later in the same plan year, the terminated employee is re-hired.

Question: Can the employer resume payroll deductions? Additionally, can the employer increase the deduction amount though the remainder of the plan year in order to recoup the full amount that was lost?

I appreciate any help you can give me.

[SLuskin]

What does the plan document say regarding rehires? Usually if the rehire takes place within 30 days, the employee just moves back into his/her previous election. However, if it is longer, the document should state whether or not that person is eligible to participate for the remainder of the plan year.

In any case, you cannot "over withhold" to make up the employer loss.