When is the term date for FSA participation in the plan?

[Guest mmclees]

I administer several FSA plans. I'm looking to see what other administrators are using for term dates in an FSA plan. In the past we have used the employment term date, but are finding that many employers are still taking the regular FSA deductions on the final paycheck. Example: term employment on 9/30/04 regular final deduction taken on 10/8/04. Hence the problem, employees are paying for a benefit they may possibly never use.

Our plan documents seem to indicate that the termination date is the date the participant terms from the plan, not necessarily the date the employment ceases. The EBIA "green bible" doesn't seem to give a definite answer and I would like to form a recommendation to all of our employers and apply it consistantly. Any suggestions would be helpful.

Thanks!

[Guest lenah]

The termination date would depend on the Plan Document and what it states. Some Plan Sponsors continue the Health FSA up to the end of the month in which the date of termination occurs as they do for their group health plans. Some may terminate the participation in the Health FSA as of the date of the actual termination of employment. This is something that should be written in the Plan Document and SPD.

[Lori Friedman]

Federal law requires every cafeteria plan to define its "period of

coverage" -- a 12-month period for which participants make their benefit

elections. Only the expenses incurred during this period can be

reimbursed by the plan.

The law also allows a plan to terminate the period of coverage of a

person who separates from service with the company and stops

contributing to the plan [see Reg. Sec. 1.125-2, Q&A 7(b)(3)]. But,

this treatment is optional, not mandatory. Many plans do, indeed, cut

off participation at the time of an employee's termination. Other

plans, however, have a "grace" period after an employee's separation;

coverage continues even though the individual isn't making any

additional contributions to the plan.

You need to look at the actual plan document. The law permits a plan

to (1) cease coverage when an employee separates from service, or (2)

continue coverage until the end of the plan's period of coverage, or (3)

specify a time period in between termination and end of the plan's

normal period of coverage (30 days, 60 days, etc.). Each plan is

governed by its own document.