FSA Plan Forfeitures - Can Employer Move Funds into General Assets?

[Guest akwallace]

Let's say that the employer has been rolling FSA forfeitures from year to year, and now has a significant amount in the account ($100,000 +).

Can the employer take those funds, and move them into general assets, even though the Plan has not been terminated?

[papogi]

There have to be plan administative costs paid from general assets over the years that those forfeitures could be applied to. That's the first thing that forfeitures are typically balanced against, and this would deplete a huge portion of the forfeitures.

[Guest akwallace]

Can you point me to the IRS regulation that describes the proper use of forfeitures?

[papogi]

The best place is Treas Reg 1.125-2 Q-7(b)(6).

You can acess it here:

http://www.125plan.com/Section%20125-2.pdf

This guidance has still left much for interpretation, as previous posts on this tolic will show you.