Teminated employee, last paycheck rule.

[Guest Ellen Hinchberger]

If an employee is terminated, can the employer, with the acceptance of the employee, take on his/her last paycheck the remaining FSA benefits for the full plan year? This would allow the terminated employee to use FSA benefits through the plan year. If so, can you furnish an IRS ruling or court case to back this up.

[Jbentz]

While i cannot point out the law to you, the FSA amount an only be changed because of a qualified change of life and terminating this does not qualify.

We had a similar discussion about this earlier in the week. If it meets HIPAA guidelines, they may COBRA.

[Guest April]

Per the FSA Summary Plan Booklet for the company I administer. It states: When an employee terminates employment the pre-tax contributions to the account stop. The terminated employee may elect to continue making contributions to the account on an after-tax basis. The employee cannot change his yearly election (unless there is a qualifying event). He will be reimbursed to the full extent of the unused annual election.

[david rigby]

That proposal is pretty close to the ZEBRA (zero based reimbursement account). Don't think the IRS allows them because they violate the basic risk feature in reimbursement accounts.