Employee Retiring mid year

[Guest Linda Bronkema]

I have an employee who is eligible to participate in the Flexible Spending Plan, but will retire at the end of June. Can this employee participate this year? If yes how would I handle the deductions from the payroll? Would the employee be limited to the amount they can deduct to half the allowable limit of the plan?

[Sandra Pearce]

The employee makes an election for the calendar year and then at the time of termination (retirement) either elects to continue under COBRA or contributions and participation ends.

[Lisa Hand]

Two clarifications - Given the nature of the question, both Sandra and my answers are presuming the question is about Medical FSA since no other category is level funded and that the plan year is a calendar year.

1. The employee's participation would not be limited, except by the regular limitations of the plan documents for the Medical FSA category as it applies to all eligible employees.

2. COBRA continuation is only available to the participant if the Medical FSA account has a positive balance at time of termination.