Medical FSA Revolving Door

[Christine Roberts]

Cafeteria plan sponsor has an employee who elected dependent care and medical care FSA in January 2002. In May the employee went from a benefit eligible position to a non benefit eligible position which stopped the FSA deductions. The employee returned to a benefit eligible position in September. This employee had originally pledged $5000 for dependent care and $1000 for health care. When the employee was reinstated into the health plan the pledged amounts were lowered on both accounts.

As I understand it, the return to benefit eligible status is a change in status that permits new elections under the FSA. Am I missing something?

[papogi]

You are correct. This is a status change which would allow an employee to make a new election, as long as the employer allows this. Since 125 rules are the upper limits, an employer may always make them more restrictive. If an employer decides to make returning employees continue their previous payroll amounts (resulting in lowered annual elections), and does this uniformly, this is allowed.

[Christine Roberts]

Thanks, Papogi - would your response be the same if the employee's new FSA election for the remainder of the year amounts to less than what the employer paid out previously in the same plan year?

I am guessing the universal availability rule dictates an affirmative response but would appreciate your input.