Usage of and restrictions on FSA forfeture funds

[Guest bbruno]

I've been trying to find information on how broadly FSA forfeiture funds can be used by the administrator to offset admin costs - the consideration is both pre and post "wrap plan" implementation and if and how funds be used beyond the scope of specific FSA admin costs (funding othe radministration costs of a program with a govenrmental entity [e.g., personnel costs])?

Were there any IRS or tax court decisions on this subject, or other federal court decisions, or simply other guidance publications that might be available either through IRS or other sources on this topic? I'll take any information I can get for review...

[Guest mmclees]

Experience gains may be used to defray reasonable admin expenses, reduce required premiums, increase benefits, or cash refunds applied on a uniform basis.

You will need to check w/ the ERISA and DOL rules as well. You need to be careful to ensure that gains are not used to offset expenses of other plans not associated with the FSA.

The EBIA cafeteria plans manual has a good section on it. I think you will find more definite answers there.

[Ron Snyder]

When in doubt, read the plan document.

[GBurns]

Unfortunately it seems that a vast number of PDs provide no guidance. I once thought that most PDs were fairly good, then a few years ago MHM, in a news release, stated that over 90% of the plans that they take over had non-compliant and deficient PDS, and additionally the PDS caused operational failures etc. Since then I kept an eye out, and I have to agree with them. I do not think that I have seen more than a few acceptable PDs in the last 100+ that I have looked at.

Bear in mind that the PD cannot preempt the law, IRS guidance or case law.

[Chaz]

I would like to revisit this issue.

Assume a health FSA has a lot of forfeitures for a year, so much so that the forfeitures exceed the total of all conceivable plan administration expenses for that plan year by a substantial amount. Also assume that the plan document provides only that forfeitures are used first to defray administrative expenses and second to be returned to participants.

Can the employer hold on to the forfeitures (in accordance with ERISA's plan assets rules) to pay for future plan years' administrative expenses?

[Chaz]

Bump.

[Guest avaviney]

is this issue resolved?

[Guest morris]

If the plan document specifically states that amounts beyond admin expenses are to be returned to the employees, then how can they be held for future plan year expenses?

[Chaz]

If the plan document specifically states that amounts beyond admin expenses are to be returned to the employees, then how can they be held for future plan year expenses?

I don't think the plan specifies that the admin expenses must be for that particular plan year.

[Guest morris]

Most plans specify an annual accounting period (except for short plan years). I would think you must perform an annual accounting and then do what the plan says for that particular period of time.