Another forfeitures/experience gains question

[Guest Amanda Davis]

Earlier this week, I asked what an employer can do with experience gains from an FSA. Our forfeitures even exceed the cost of our admin fees.

What can we do with the excess? I've read in several "unofficial" places that the money can be returned to company assets, but I can't find any regs that support that. I've asked our TPA if that was an option to us and they said that it isn't.

Can anyone help?

[Guest Jeff V]

I think if you type "forfeitures" in the search field and look under the Cafeteria Plans forum, you'll get some hits on this. I found a reference to the Proposed Reg 1.125-2, which directs that forfeitures from FSAs should not be returned to the company, but should be used only for admin costs or returned to employees (as I understand it, the experience gain is what's left after forfeitures are already used to pay admin costs.)

[Guest aearle]

Amanda,

You may want to search through some other threads that talk about this topic. Specifically, the thread entitled "Section 125/Cafeteria Plan Forfeitures" on 8-15-02. In that thread, the opinions differ from what you have gotten here. (Personally, I am still confused as to the correct answer.)

[mbozek]

If one thinks about this issue the IRS position in the prop. regs are contradictory because the employees' contributions are considered an ins premium to the employer to cover the cost of the benefits (hence use it or lose it) yet the experience gains from ee contaribions must be used to defer admin cost or be used to provide additional benefits. Thus the employer is in the position of being required to pay up when employee costs ?admin charges exceed the premium payments but the er can never benefit from the gains. Since the prop. regs are not binding on anyone and the ee contributions are employer assets why not keep the gains as a reserve againsit next years plan expenses?

[Kirk Maldonado]

I have a standard answer as to what to do with experience gains in excess of administrative expenses, that I'll use again.

Hire an ERISA attorney to ask him or her to give a legal opinion as to what you can do with the excess funds, and pay the legal fees out of the plan. That should solve the problem with the excess funds, regardless of the amount of those funds.

[GBurns]

A much better suggestion is .... Do not hire Kirk or any other attorney...Hire me or any other friend of mine who is a benefits consultant and pay us instead. We would like to help tell you what to do just as much for just as much.