Need ASAP Answer - FSA Forfeit Funds?

[Guest JTrini8302]

I have a prospect who wants to use their FSA forfeits from the end of this plan year to establish a self-administered Wellness Program.

Given my previous experience with Sec 125, my understanding is that the funds can only be used to refund all plan participants equally on a post-tax basis or to offset administrative costs of same FSA plan.

My legal eagle is on vacation and of course I need the answer yesterday.

Can anyone help with this one?

Thanks!

[Guest JerseyGirl]

I believe you are half right-- if the employer wishes to refund forfeitures it must be equally to all participants and on a post-tax basis, and it is assumed that , on paper anyway, any forfeitures are used to off-set admin costs for the plan. But, since the forfeitures stay in the general fund of the employer and are assets of the company, I can't see any reason that would prevent the employer starting a self-funded Wellness Program using these funds. What a nice idea.

I am however, surprised there is enough money left on the table at the end of the plan year to do much more than buy a couple of pizzas. If the participants are properly educated to fully understand the plan, they use every penny of their contributions, and the employer saves more than enough in payroll taxes to off-set the administrative expense while adding nicely to the bottom line.

What happens to the Wellness Program next year if there are no forfeitures? Will the employer continue to fund it?

[Guest JTrini8302]

Sorry I took so long to answer your question on the Wellness Program.

The prospect (now client) had intended on implementing the program with or without the forfeitures, they just wanted to know if they could use these funds to start it up. However, their run-off is 3 months so forfeitures wouldn't have been known until April 1 (for PY ending 12/31/03).

You're right about the size of the forfeitures though. There should be very little left over. But for a group their size, I had figured a couple of pizzas and a 12 pack of Pepsi would have been left.