Reimbursement from DCAP after Termination of Employment

[Guest DAF]

Model language in several DCAPs suggests that upon termination of employment a participant can access unused amounts in the DC FSA to reimburse expenses incurred through the end of the period of coverage. This appears to be the result of the 12-month period of coverage rules for DCAPs, but I am unable to find anything to support this practice.

Any guidance is appreciated.

[papogi]

1.125-1 A-18 paragraph 2 only uses the words "plan year" and is partially to blame for the confusion that surrounds this issue. I've seen plans that allow spending down after the term date and others that don't. Because there is some confusion on this, and the uniform reimbursement rule does not apply to DCAP, many employers are willing to take the relaxed interpretation on this point. In principle, I like the stronger approach where the DCAP is treated the same as a HCFSA. In practice, however, it will cost the employer nothing to allow spending down, and the IRS has offered no specific guidance on the issue that I am aware of.