Employee Termination

[Guest maya24]

Can an employee who terminated that has spent all their medical reimbursement pay off the balance pre-tax with their last pay check?

[oriecat]

I think we might need a little more information about what you are trying to do. You cannot force an employee to "pay off the balance" if they terminate, that would negate the employers risk with the plan and violate section 125 regulations.

[Guest maya24]

Not forcing anyone to pay. The employee wants to bring their account to zero. The employer wanted to know if it could be taken out of their final paycheck pre tax, like a normal deduction would be. I wasn't sure cause the employee is terminating so I am just being safe

[Guest b2kates]

I really question if employee is voluntarily paying off the balance. The employee is under no legal obligation to bring an overspent FSA account back to zero. Remember under 125, the employer must be at risk for the entire amount regardless if adequate withholdings have been made.

I have never seen an employee truly voluntarily remit such amount.

[Guest maya24]

I have had quite a few people ask about that. They don't feel right spending all that money when the didn't deposit it. On the other hand, I have had many say they feel it was owed to them. This is coming from the employer and I told her to get it in writing that it was the employee's idea. I am just unsure if they can take the balance pre tax from their final pay check.

[leevena]

This is a strange situation, and I agree with b2kates about whether this is truly voluntary. Also, how can someone overspend their fsa? You are asking about an FSA are you not? The enrollee tells the employer/administrator how much to deduct from their pay, say $2000, and then has more reimbursed, say $2500, and now wants to return the $500 to the employer?

Bottom line is an employee could return any monies back to the employer. As for withholding it in the final paycheck, you might want to review your state's laws and see if that is legal. You further ask if they can pay off the extra amount with "pretax" dollars. Wasn't the initial dollars deducted pre-tax? If so, the employee received a tax break on these dollars that was not allowed in the first place. Seems like you might have a administrative problem IF I understand this.

[Guest Green92]

This is not uncommon for terminated employees looking for good references and trying to leave on good terms. I read the original post to mean that the employee, at termination, had spent (been reimbursed for) more money than the payroll deductions up to that point would cover.

[Guest maya24]

The employee is terminating in April. The Plan yr fortheir FSA goes until June, that is why the employee spent more than they contributed. They spent their whole election before April. The employer said the employee wanted to bring it to zero. That is not the issue I am asking about. I am asking if it is ok to take the whole deduction pre tax from the final check?

[Guest maya24]

The employee is terminating in April. The Plan yr fortheir FSA goes until June, that is why the employee spent more than they contributed. They spent their whole election before April. The employer said the employee wanted to bring it to zero. That is not the issue I am asking about. I am asking if it is ok to take the whole deduction pre tax from the final check?

And Yes Green92, that is exactly what I meant!

[Guest mmclees]

We have encountered this issue numerous times with our clients. It turns into more of a COBRA issue.

According to EBIA's cafe manual, if the Health FSA qualifies for the COBRA limited obligation, the employer does not have to offer COBRA to participants with overspent accounts. They basically state that it can't be decided on a case-by-case basis, it would violate the uniform coverage rule.

It is stated as such in most of our clients Plans that COBRA will not be offered to those with overspent accounts (if the plan qualifies for COBRA limited obligation). In our company's plan, we do not allow the repayment of any overspent accounts. It is employee money and we would not be educating our employees fully if the employee feels obligated to pay the money back. Would you pay it back if you were told it is your money, no strings attached?

You could look under XXI, page 1183 in the EBIA Cafe manual.