Forfeitures in Health & dependent care FSA's

[alexa]

Our plan uses forfeitures to offset plan admin expenses for the year.

We have only started utilizing this offset and as a result have a large forfeiture balance.

Can we apply these forfeitures toward amount we have prepaid for terminees?

Can we as employer retain these forfeitures?

The forfeitures are of pre-tax employee contributions

What other legitimate use can we utilize these forfeitures for besides reducing plan expenses?

[papogi]

The guidance that the IRS gives concerning forfeitures (experince gains) can be found in 1.125-2 Q-7(B)(7). It states that forfeitures may be used to reduce administrative costs, reduce required premiums for the following year, or returned to the premium payers as premium refunds. Like most of the guidance in 125, the IRS uses the word "may." This means you don't have to return the forfeitures to the participants, but if you do, there is the guidance. Nowhere does it say that you "must" use one of the three possible outlets. If your 125 plan doc does not otherwise specify how experience gains are to be used, the funds go into the general assets of the company, and can be used however you wish.