Return of payroll error withholdings

[Guest jim williams]

Does anyone know if Sec 125 payroll deductions withheld by the employer in error and then deposited to a trust are prohibited from being returned to the employee?

The deductions were for dependent care expenses under a flexible spending account.

[Guest b2kates]

Were the funds truly withheld in error.

Why were they deposited to a trust? 125 is a bookkeeping entry. does this plan formally maintain a trust?

[Guest jim williams]

Yes, there was an error. The client began payroll deductions for this participant commencing for a payroll period sooner then the participant indicated. Subsequently, the participant terminated employment and as a result has additional funds credited to her Dependent Care Flexible spending account for which she does not have incurred expenses, therefore, under the use it or lose it provision she has to forfeit the excess amounts that were withheld from her pay.

The client established a separate bank account to process the Sec 125 claims.

[Guest b2kates]

If it was truly an administrative error, I do not believe that the use it or lose it rule applies. Seems the employee would have an argument that it was improperly withheld - not incompliance with the terms of the plan; i.e. the election.

Also, I do not follow how the separate bank account for processing is a trust that could not return improperly deposited funds.