Continuing flexible spending plans after termination of employment

[Guest Louis Gray]

We have been telling terminated employees in the COBRA notification letter that they can continue making contributions to their medical and or dependent flex plan(s) on an after tax basis by sending a check for the remaining contributions for the year. We also tell them that they have 90 days after termination to use the pre-tax amounts they have already contributed in to the flex plan(s).

Are we doing everything that is required?

[Sandra Pearce]

For medical spending account:

If you are saying that they must make one payment for the remainder of the elected contributions for the year, then that would be more strict than the regulations and not allowable. If you are saying that you are allowing them to continue their contributions on an after tax basis then that would be alright although there are certain circumstances stated in the final regulations when you would not be required to offer COBRA for a medical spending account.

For Dependent Care account:

The regulations do not require you to offer COBRA.

If your plan is written with a 90 from termination of employment/participation deadline for filing claims, then there is nothing wrong with reminding the COBRA qualified beneficiary of that. If you are saying that you are reimbursing claims for services rendered within a 90 day period after employment/participation ends, then that is not allowed.

[QDROphile]

Please explain why a dependent care spending account cannot pay eligible expenses incurred after termination of employment and within the same year.

[papogi]

It can. Sandra Pearce is correct that there is no legislation which requires that COBRA be offered for a DC account since it is not considered a health plan.

[Mary C]

Yes but the regs do state that eligible expenses are those incurred to allow you and your spouse (if applicable) to work or attend school. How do you verify that the ex-employee has another job for the remainder of the year and is not just taking some time off?

[papogi]

You're right, you can't verify that. The DC claim submission form should have language stating that these expenses are eligible under the plan, etc. Even for an active employee submitting DC claims, do you currently call the suspected place of employment of the spouse to obtain confirmation that the spouse is actually working? You just have to draw the line somewhere and rely on the signed affidavit.