FSA Plan Administrative Fees

[Guest akwallace]

When the FSA Administrative fees are paid by the employer, can the cost be charged to the employee withholding account? Or do the accounting records have to somehow reflect that only forfeitures were used to pay the admin. expenses?

[SLuskin]

We have seen some plans where the employers have the employees pay for the administration. Their election includes $X for administration.

Otherwise, the admin fees are paid by the employer. Forfeitures can be used to reimburse the employer if there are funds remaining after the grace period is over, and if the document states that forfeitures can be used for that purpose.

[Guest jashendo]

Employees can indeed pay for administration; all they are doing is reducing salary (i.e., paying a premium) by a greater amount than the maximum reimbursement amount (i.e., the benefit), even if it is expressed in the way described by SLerner -- $X for benefits + $Y for administration.

However, the forfeitures can always be used by the employer to pay admin expenses -- or to pay its rent, or telephone bill or whatever -- whether or not it is so specified in the plan. This is because the result of a salary deferral is that the $$ deferred is still the property of the employer. The employer has undertaken an obligation to reimburse you for $X worth of expenses, but the $$ that you deferred was and remains the employer's money. If the amount happens to exceed the amount paid to you in reimbursements for the year, then the excess is still the employer's money, indistinguishable from the employer's other money. We refer to that as a "forfeiture", but it is not a forfeiture in the same sense as under a funded plan. You do not forfeit an account balance -- what you really forfeit is the right to receive any more reimbursements.

[Ron Snyder]

It seems to me that your plan documents must be consistent with your practice. If fees are to be withdrawn from the participant's account, the plan documents AND SPD need to reflect that charge and practice. I would go a step further and include the fee disclosure on the enrollment form, so the participant acknowledges it.

[mroberts]

Why even go through the hassle of charging back the employees? The employer is saving 7.65% on all deferred amounts, which usually ends up making the program pretty close to free if not in the employer's advantage anyway. For whatever reason, participation in FSA's are already low. Charging your employees for the right to use them is just going to further reduce participation and make offering the benefit less and less attractive. If the whole purpose of offering benefits is to attract and retain employees, do you think this practice is going to be successful?