Cafeteria Plan/Cobra option

[Guest tonjer]

We have a client that is proposing to offer qualified beneficiaries the option to extend their coverage period to the last day of the current plan year, with a maximum benefit equal to such participant's FSA balance as of the participant's termination date. The participant will be a one-time premium for this election. I have been unable to find anything that would prevent this option, does anybody have any thoughts? In addition to electing COBRA coverage and paying for it for the remainder of the current plan year, this other option provides that participants may use the available balance in his or her account as of his or her date of termination if he or she contributions $1.00. Such participant is not permitted to contribute any additional funds to the plan.

[Guest jreddi]

I would refer to the plan docs on this one.

In our case, even if the employee/employer made a one-time contribution (assuming pre-tax) to the FSA that equaled the annual election, the employee would only be able to claim expenses that were incurred PRIOR to the termination date. In some cases, I have seen plans that require the employee to file a claim for those funds within 60 days of his/her termination.

The employee can elect COBRA for his FSA and contribute, of course, on a post-tax basis, but this defeats the tax benefits of an FSA election. But, then, with the employee/employer continuing the coverage by making the one-time contribution, all of the funds, used or unused, would be eligible for reimbursement for the remainder of the plan year.

John