Medical FSA and Termination

[Guest MarcieMcA]

Scenario: An employee's hire date is 5/1/02 and they elect to put $500 into their medical FSA. They terminate on 8/31/02 and submit $500 in eligible medical receipts incurred during the time they were active. The employee was reimbursed for only the amount they actually contributed because the TPA stated that they termed so they cannot get the full amount out. Is this correct? I was under the impression that you must reimburse the amount elected in a Medical FSA unless otherwise stated in the Plan Document.

Please offer feedback on this. Thanks for your help!!

[papogi]

The employee is definitely entitled to the full $500.

[Guest MSMA]

Your instincts are on the money...literally. The participant is entitled to the full election, regardless of amount deposited to date as long as dates-of-service occur during their course of employment. This is a vital part of the regs.

[Guest MarcieMcA]

Papogi-

That is what I thought but they said "that the employee would have received the $500 if the claim was submitted while they were active, but because they terminated we will only reimburse what was put in".

I looked at the Plan Document and they do have a clause saying:

"in the event a Participant terminates his participation in the Health CAre Reimbursement Plan during the Plan Year, if salary redirections are made other than on a pro rata basis, upon termination the Participant shall be entitled to a reimbursement for any salary redirection previously paid for coverage or benefits relating to the period after the date of the Participant's seperation from service regardless of the Participant's claims or reimbursements as of such date."

I didn't know that could be done.

[papogi]

That clause is saying that if an employee elects $500 for the year, and basically redirects the entire $500 at once (rather than on a pro rata basis where deductions are taken at regular intervals), then that employee is entitled to receive some of that $500 back if they terminate. If they terminate exactly half way through the plan year, they should get $250 back. The provision has nothing to do with the uniform reimbursement requirement. The employee is entitled to the full $500. In fact, the employee may even be entitled to some premium reimbursement depending on how the FSA payroll deductions were being taken. If this is the provision that the TPA is using to justify their not sending the full $500, they are reading it incorrectly.

[Guest MarcieMcA]

Thank you...that really helped me.