DCAP after termination

[oriecat]

How do you handle DCAP reimbursements after termination?

I found an FAQ that said "DCAP expenses continue to be eligible after your termination date, under the "spenddown provision" (spenddown is applicable only to the Dependent Care FSA). However, you may be reimbursed only for the amount fo Dependent Carew that has been taken out of your check. So if your last day of work is Aug 15th, you can file for child care reimbursement until the end of the plan year, but cannot be reimbursed more than the amount that was taken out of your check."

I am pretty sure that I researched that and found that it was IRS regulation, but now I can't find it of course.

Now I have a termed ee trying to get reimbursed but the TPA says the claims need to have been in within 90 days of termination. So I check the plan doc and SPD. And it is contradictory to me. First it says "You will still be able to request reimbursement for qualifying dependent care expenses for the remainder of the plan year from the balance remaining in your dependent care account at the time of termination of employment." Ok, to me that jibes with the above quote. Then a sentence later it says "You must submit all claims within 90 days of termination of employment." Well if you only have 90 days, then you don't have the rest of the plan year.

So I believe we need to make an exception in this case, as I was confused and wrongly informed the employee, but I think we also need to clarify the plan doc so it doesn't seem contradictory, so I am just curious on how others handle this. Does the DCAP have the rest of the plan year, or just a runout from the term date?

Thanks

[g8r]

It is open to plan design. Either option is technically o.k.

But, you do need to be careful if you allow someone to get a reimbursement of expenses "incurred" after termination. In general, dependent care expenses are expenses for child care so that you can work (or go to school). If a person has terminated employment it's possible subsequent child care expenses aren't qualified unless the person has a new job or is a full-time student (and there are a few other exceptions).

[Guest JerseyGirl]

Child care expenses can also qualify for reimbursement if the former employee is actively looking for work, up to the amount they had contributed prior to termination.

In our SPD it states that should there be a discrepancy between what is stated there versus what is stated in the plan document, the plan document will prevail. However you resolve the current issue, you will need to make the necessary changes to the language of all the documents so they are consistent.

[mariemonroe]

I have a situation where the plan sponsor of a 125 plan, health FSA and dependent care FSA is merging with another organization on 9/1/04. I am trying to figure out what happens to the participants' FSA account balances after 9/1/04.

I have read the regulations and they don't seem to address what happens in this circumstance.

See prop reg 1.125-2 Q&A 7(b)(3) and (b)(8): The period of coverage for a FSA must be 12 months or, in the case of a short first plan year or a short plan year of a cafeteria plan where the plan year is being changed, the entire short plan year.

A short plan year due to termination of the plan because the sponsor is being acquired is not addressed. So do participant's lose their account balances on 9/1 or can they still spend the account balances (to the extent they have deferred as of 9/1) for health and dependent care expenses incurred for the remainder of the plan year (til 12/31)? Are there any risks to allowing participants to do this?

The plan document does not address this at all.

Thanks for any help,

Marie