Query: Administrative Fees for participation in FSA's

[Guest MSMA]

Participants in Medical and Dependent Care Reimbursement Accounts are charged a monthly fee of $3. ($4 if both are selected)

QUESTION: Is this fee to be assessed PRE or AFTER tax?

Thank you!

[Guest Matt J]

I'm curious why a participant would have to pay to join a FSA account. Do you mean the Employer has to pay $3 or $4 per month?

[Guest MSMA]

There is no charge/fee to the employer for adminstrating the FSAs. The benefit is completely optional and the adminstrative fees defray the costs to administer the program. The employers are all non-profit organizations. The most a participant would pay would be $48 a year.

[Guest Matt J]

Interesting. I have never heard of that before. I deal with larger groups plan though.

[mroberts]

I've never heard of the fee charged that way either. Isn't the amount that the employer does not have to pay towards FICA enough to cover the costs? For example, if someone elected medical only and wanted $1000 in their FSA, why would you charge the participant? The employer would be saving $40 on the transaction (paying $36 for fees instead of $76.50 in taxes). I suppose it could cost the employer some money if enough employees elected small amounts to go into their FSA, but just think of the amount the employer is saving if someone maxes out the dependent care amount - $383. I would think that would more than make up for any shortfall. Charging participants a fee might end up costing the employer more than just eating the costs since it's going to dissuade employees to particpate.

In regards to your question, I don't know. My feeling is that since it's a fee, it would be after tax.

[Sandra Pearce]

The monthly fee the TPA charges for each FSA participant is usually paid by the company; however, some companies do have the employee's pay the fee. The TPA handling the admistration should be able to answer the question about whether the fee is pre tax eligible.

[Kirk Maldonado]

This shows how different some peoples' practices are. I see a flat dollar amount per participant quite frequently.

[mroberts]

It's poor consulting if this is the case. A broker has to explain why it doesn't make sense to charge a participant a fee for being in the FSA. Companies spend thousands per month on medical insurance and won't pick up a couple bucks for the FSA?

[Lisa Hand]

mroberts - there are a number of situations in which a company may not want to or be permitted to pay those expenses, none of which are the result of bad advise from the broker/consultant/TPA. For example, public entities may be prohibited from committing to covering this type of expense by their charter, so the only choice is to have the employees pay the fee or not offer the benefit. Also some employers will not offer the benefit at all unless the employees are paying the fee based on their size, culture or structure, such as the non-profit in this example. The fee is pre-tax since it is a cost associated with the plan. While passing the fee on to the employees can have a chilling effect on participation at lower levels, having the benefit offered is better than not, if that is the choice. It is often the case, if it was a voluntary choice to charge the employees the fee, that after a couple years of experience with the plan, the employer will switch to covering the fee to improve participation.

[mroberts]

If there are legal reasons why an entity can not pick up the administrative costs, then that would obviously be a very good reason as to having to charge the participants to be in the plan. But the rest of your explanation is simply your opinion. Mine is that companies should pick up the tab.

[GBurns]

The original poster did not ask for an opinion as to what the employer should or should not do. In fact it does not matter what our opinion is on this matter, it only matters what employers choose to do. The morality of it is not the issue.

MSMA posted the question:

QUESTION: Is this fee to be assessed PRE or AFTER tax?

Matt J followed up with:

I'm curious why a participant would have to pay to join a FSA account. Do you mean the Employer has to pay $3 or $4 per month?

It seems that the vast majority of public sector entities and no-profit entities let the employees pay the fee on a pre-tax basis. Add to this the many private sector employers including a few large Fortune 100 companies and it could be that the majority of employees do pay the fee (on a pre-tax basis). For 2003 you could say that since the Federal Gov employees now have an FSA for which the employees pay the fee, the VAST majority of employees do pay the fee and on a pre-tax basis.

[mroberts]

The reason I brought up the employer eating the fees in the first place was as an alternative to charging the employees for particpation in the FSA. You'd be surprised what employers know/don't know when it comes to FSA's. I was simply looking at it from a different point of view, not as a moral issue.

Anyway, the answer to the question apparently is that the fees can be taken out pre-tax per Lisa Hand. Does anyone concur with this? I'm simply asking since she is the only one that answered the original question. Thanks!