Grace Period Question

[Guest Carolynn]

I have a question about grace periods (run out)- our documents are not clear on this issue: Does a terminated employee get the grace period starting from the date of his termination? Or does he get the grace period starting at the end of the plan year. In other words, assuming a calendar year plan, and a 90 day grace, does the employee who terms in June, have a 90 day grace until the end of September? Or does his grace period extend until March?

Thanks for any help!

Carolynn

[papogi]

I have not seen anything where the IRS addresses much at all concerning run-off, so this seems to indicate that either is allowed as long as the rule is applied uniformly. Since administering different run-off periods for different employees with various termination dates is difficult, most employers find it easier to allow terminated employees so submit FSA claims up to the regular cut-off period for active employees.

[SLuskin]

Our docs are written so that the grace period is the earlier of 90 days past the date of termination or 90 days past the end of the plan year. Our software does not have any trouble tracking the dates. We have found that our employers, for the most part, like to know the terminees balances asap.

The important thing is to have the information both in the plan document and very clearly in the summary plan description.