FSA Change in election

[Guest jgroves]

Employee A at the beginning of the year knows that she will have a baby in March. To prepare for the extra costs associated with child birth, she elects to have $3,000 for her Medical FSA. After the birth she finds out that the medical plan actually covered more than what she thought (this is a made up example obviously!!) and thus owed much less in out of pocket expenses. Since having a child is an allowable change in family status, she decides to change her contributions to $1,000 (at the time she had only paid in $900). The questions is:

1. She can do this, right?

2. Can she only take out $1,000 or is it similar to ending employment where a person can actually use the original elected amount which may be more they original put in at the point of termination.

[Sandra Pearce]

If the employee took an unpaid leave of absence for the birth she may have the right depending upon the wording in your plan document to stop participation. Regarding making a change to decrease the annual medical savings account election due to the birth of a child I believe this change would be prohibited because it appears inconsistent with the family status change. Adding a dependent to the family should increase the cost not decrease it. The fact that the employee did not make a valid determination of out of pocket expense would not be an acceptable reason to allow a change in the FSA election.

[Guest jgroves]

Sandra, thanks for the reply. I've asked our TPA who administers the FSA plan and they say it does not matter. I'm wondering if this is an option that an employer can have or is it mandatory? Thanks!!

[QDROphile]

My vote is that the change is disallowed by law.

[KIP KRAUS]

I agree with QDROphile. Just because someone makes an error in how much medical expense he or she will have doesn’t justify a change. What if a person thinks he/she has to have surgery and then finds out that physical therapy, which is much cheaper can resolve the condition, does that mean they can change their FSA contribution, no it doesn’t.