Family Status Change and FSA

[Guest benefitsanalyst]

Employee Bob's spouse became eligible for benefits under her employer's plan. Bob would like to decrease his health care flexible spending account election. He has not used any dollars yet from his FSA account. Can he do this?

[A Shot in the Dark]

I believe Bob could change his election.

In your example, Bob's dependent becomes newly eligible for medical benefits. I believe that meet sthe criteria for a Change in Status, specifically Employment Status. Generally, the Employment Status definition reads as follows (See Item 5):

Employment Status. Any of the following events that change the employment status of the Participant, the Participant’s spouse or Dependents: (1) a termination or commencement of employment; (2) a strike or lockout; (3) a commencement of or return from an unpaid leave of absence; (4) a change in worksite; and (5) if the eligibility criteria of this Plan or other employee benefit plan of the Participant, the Participant’s spouse or Dependent depend on the employment status of that individual and there is a change in his or her status with the consequence that the individual becomes or ceases to be eligible under this Plan or other employee benefit plan.

[Guest benefitsanalyst]

Can he decrease the FSA even if he doesn't drop his spouse from his medical plan?

[A Shot in the Dark]

The change in employment status is created by Bob's spouse becoming eligible and participating in another plan.

So, it is my belief that her continued or discontiued participation as a dependent in the health plan is immaterial.

[Mary C]

Be careful! The regulations do not recognize all the same family status changes for FSA as they do for health and other welfare plans. I believe that a spouse become eligible for benefits does not allow for a change in the FSA election.

[papogi]

Mary C's warning is correct, but my understanding is that significant cost changes or coverage changes (1.125-4f) is the area that does not apply to FSAs but does apply to H&W plans. The section dealing with changes in status (1.125-4c) does apply to FSAs and H&W plans alike, with the usual caveat that the election change must be consistent with the status change.