Calling all FSA experts...

[ERISAatty]

Help - I am aware that the full amount to be deferred over a year under a Flexible Spending Arrangement (FSA) "must be available to the employee at all times." Treas. Reg. section 1.125-3, Q&A 6(b)(1).

Great. But what I need to know is:

When an employee is on track to make payroll deductions to the FSA for $2,000 over a one-year period (from January to December), withdraws $1,000 of the amount by March, and then terminates in March,

1. Does the employer have any right to collect the difference between the payroll deductions as of March and the excess, withdrawn amount?

2. Are there income tax implications to the terminated employee, such that the employer would be required, e.g. to issue a form 1099?

A contact at a plan administrator company tells me that the answers are:

1. No employer right to collect (but the employer may gently ask); and

2. None of the withdrawn amount is taxable to the terminated employee, and no tax reporting is required.

Can anyone verify the correctness of these answers, AND, BETTER YET - earn my eternal gratitute and trust by providing citation to authority on these issues?

Thank you very much!!!!!!

[Guest b2kates]

those answers are correctl.

Remember that in sponsoring a FSA, the employer is acting like an insurance company and subject to the at risk rules. That is why the electing amount must be available at all times.

[Guest rocnrols2]

Here is the citation authority you requested:

1. Prop. Reg. Section 1.125-2, Q&A-7(b)((2).

2. Prop. Reg. Section 1.125-2, Q&A-7(b)(3).

Although the proposed regulations on point do not expressly address the first issue, it is implied that if the coverage has to be available for the maximum elected amount for the entire period of coverage, the employer cannot compel the employee to make up the shortfall. As to your second issue, (b)(1) of Q&A-7 states that satisfying these reauirements is necessary for the FSA to meet the income tax exclusions under Section 105(b) and 106. Hope this helps.

[WDIK]

Stirring the pot.

A little more stirring.

One more stir just for good measure.

[ERISAatty]

Thank you, b2kates and rocnrols2, for your much appreciated assistance!

[WDIK]

Thank you, b2kates and rocnrols2, for your much appreciated assistance!

Where's the love?

Although I happen to agree with ERISAatty, b2kates and rocnrols2, I though it would be fair to provide links where other views were also expressed.

[ERISAatty]

Aha!

WDIK - I did not realize, until you pointed it out, that the underlines were links. I just hadn't understood the reference to the stirring, and to which pot.

But now I see the vast extent of your effort and assistance in pointing me in the right directions.

In answer to your hypothectical, eponymous question, I would say that you know a lot.

Accordingly, I extend to you, to, WDIK, my lasting, humble gratitude! Thank you.

[WDIK]

Now I'm embarrassed. I'd try to explain that I was only trying to be humorous rather than fishing for compliments, but Blinky already found me out earlier.