FSA and Company Shutdowns

[mroberts]

What happens to any unused amounts in an employee's FSA if a company shuts down? For example, say I have contributed $500 to my FSA because for a dental procedure in December, however, my company shuts down today. What happens to that $500? Is it reimbursed back to me?

[IRC401]

As far as I can tell, you lose it. If the Company goes into bankruptcy, the employees who have incurred expenses that have not been paid hadve claims, but if you haven't incurred any expenses prior to the shutdown, you appear to be out of luck.

[Jbentz]

This is a hard question to answer, but i can tell you my experience. One of my past employers was closed (by our state Department of Insurance) and shut down and i had several reimbursements out for about 5 employees (tuition reimbursment, mileage, etc...). We were allowed to let them go through and the employees were reimbursed.

Ours was a very difficult situation because we were also the health insurance company, which means no COBRA could be issued. Our outstanding health claims had to go through the bankruptcy court, like all the others.

I would hope in your case that the judge would allow the money to go back to the employees, but technically, i think it is an asset and any outstanding claims would be liabilities.