Pro rata employer contributions

[Guest Ozzie]

If a company makes a $500 per year employer contribution into the FSA for their employees, can the employer contribution amount be pro rated for individuals that do not participate for the entire year (for example a new hire)?

[Guest JerseyGirl]

What do the Plan Document and SPD say on the subject? Also, does a new hire have to pro-rate their annual election, or is the full plan maximum allowed for someone coming in mid-year – I would think they would be done the same way – that is, if the annual max allowed is $1200.00 and a new hire come into the plan at the beginning of the second half, are they limited to a max of only $600.00? If that were the case (which I doubt) it might give you justification to pro-rate the employer contribution.

If none of this is spelled out in the Plan Docs, I would say the employer contribution needs to be the entire amount available to everyone else.

[Kirk Maldonado]

I think pro-rating leads to absurd results. For example, assume participant A elects to contribute $100 for the entire year while particapant B elects to contribution $5,000 even though participant B only can participate in the second half of the year (because B was recently hired). So under pro-ration, participant A would get an employer contribution that is twice the amount of the contribution for participant B? That result seems hard to justify.

[GBurns]

The employer contributions that I have seen, have all been pro-rated. If the annual amount is $500, it is contributed as $41.66 per month subject to reaching the cap of $500 or termination of employment, whichever comes first.

I have never seen any where the employer contribution had a connection to the employee election amount.

[SLuskin]

We have employers who prorate and those who don't. It is spelled out in the docs, and has nothing to do with the ee contribution. In fact, since it is not a match, many of the employees do not contribute at all since the employer contribution covers the amount they think they will use.