FSA Pre-Tax Contributions

[Guest Amanda Davis]

Can someone point me toward regs/documentation that explain the fact that pre-tax FSAs are treated as a type of "insurance"--meaning that both the employer and the employee assume risk.

I'm led to believe that the "insurance" aspect of it is tied to the change in status rules-that's why people can't just come and go into the plan at will.

any help is appreciated!

[g8r]

Unfortunately I typically go onto this site from my home and I don't have the regs here (either I need to get a life or a copy of the code and regs for my home).

But, the risk shifting is only due in part to the restrictions on changing elections (this shifts the risk to the employee). But, for employee risk shifting, it also includes the inability to carryover amounts from one year to the next. Thus, the employee generally is tied to the election for the full year and forfeits anything not spent.

For the employer, the risk shifting is due to the fact that the full amount must available through the period of coverage. Here the employer may be required to reimburse the full annual election and may not be able to recoup the full employee contribution (if, for example, the employee were to quit).

There are numerous ways people try to avoid the risk shifting - especially to the employer - but that's another story.

[GBurns]

The reply by q8r is a good explanation of the "Use it or lose it" and the Uniform Coverage requirement that provide most of the required "risk".

I do not know of any non-subscription site that keeps the Proposed Treasury Regulations 1.125-2 that provides the FSA "rules".

Your nearest Law Library would be your best source.

[Guest ybahti]

http://www.irs.gov/pub/irs-utl/tres_reg-1125-4.pdf

http://www.irs.gov/faqs/page/0,,id=83301,00.html

http://www.gtlaw.com/pub/Alerts/2000/spanierd_10.asp

Here are three sites that should be helpful. The last is not govt site but has their interpretation of the regs.

[oriecat]

I do not know of any non-subscription site that keeps the Proposed Treasury Regulations 1.125-2 that provides the FSA "rules".

The Proposed Treasury Regs 1.125-2 are available on the IRS.

http://www.irs.gov/pub/irs-utl/tres_reg-1125-2.pdf

[GBurns]

oriecat

Thanks. I was not aware that they had it on their site and I have seen the question asked by others who never knew of it either. Is this new or has it been available for some time?