Death of a participant

[Guest Laura Browne]

Had a participant die unexpectedly at age 35 this weekend. He has a spouse and kids. He participates on the medical reimbursement only.

Our plan doc states: 2.7 Death "If a Participant dies, his partipation in the Plan shall cease. However, such Participant's beneficiaries, or the representative of his estate, may submit claims for expenses or benefits for the remainder of the Plan Year or until the Cafeteria Plan Benefit Dollars allocated to each specific benefit are exhausted. A Participant may designate a specific beneficiary for this purpose. If no such beneficiary is specified, the Administrator may designate the Participant's Spouse, one of his dependents or a representative from his estate."

According to the section on "2.6 Termination of Employment" just before"2.7 Death" section in the PD, the termination of employment section specifically references that the section covers any termination other than death.

After reading the above, can his spouse and dependents continue to participate in the plan until the end of the plan year?

[J Simmons]

I think it is so PROFOUND that plan documents often specify that participation ends when you die. (Without such a clause would the proper application of the plan document continue the dead person's participation?)

Anyway, an interpretation that doesn't completely ignore that clause but tries to give significance to it along with the other provisions of section 2.7 appears to be that only expenses incurred prior to the employee's death are eligible, but that for the rest of that plan year claims may be submitted for expenses incurred prior to the employee's death.

What about expenses incurred for health care for the spouse and beneficiaries during the remainder of the plan year? An interpretation that the spouse and beneficiaries expenses for health care provided them after the employee dies would render the first sentence of section 2.7 ("If a Participant dies, his participation in the Plan shall cease.") to be meaningless.

However, there's a little wiggle room probably in the fact that the plan document probably also specifies a run-out period for ongoing participants--so many days after the plan year ends to submit claims for expense for health care provided by the end of the plan year. If the spouse and beneficiaries of a deceased employee could only submit claims for health care provided them before the employee's death, why limit the time frame they can submit the claims to the end of that plan year? Why not also give them the post-year run-out period?

Since there is no obvious reason that the spouse and beneficiaries should not have the post-year run-out period suggests that perhaps the provisions you quote from 2.7 were intended to allow claims for health care to the spouse and beneficiaries after the employee died and before the end of the plan year.

The plan administrator has an interpretive call to make, and then follow thereafter in other, similar situations.

There would also be COBRA implications, if the employer is not too small. If COBRA applies, then the spouse and children could likely continue the medical reimbursement for expenses incurred through the end of the year, provided the remaining annual cost is paid for.

[LRDG]

Unless he died at home in bed and was put in a sack at the curb, there are likely qualified medical expenses executors of the EE estate can claim reimbursement for on behalf of the EE.

Even 'unexpectedly at age 35,' there would likely be ambulance services, ER services, other medical procedures to sustaine life. without the particulars, I can't say definatevly that would be the case, but I would assume so.

Sec. 2.7 Death "However, such Participant's beneficiaries, or the representative of his estate, may submit claims for expenses or benefits for the remainder of the Plan Year or until the Cafeteria Plan Benefit Dollars allocated to each specific benefit are exhausted. A Participant may designate a specific beneficiary for this purpose. If no such beneficiary is specified, the Administrator may designate the Participant's Spouse, one of his dependents or a representative from his estate." I interpert this to mean expenses incured prior to death, but which executors would be eligible to submit claims incurred by the EE within the EEs eligible coverage and claims period.

Because there is a surviving spouse and children who's expenses may likely have been included in the FSA annual election made by the EE, those funds and benefits must also be given consideration.

The question of COBRA eligible beneficiaries and their participation is a seperate issue.

[masteff]

For the sake of a different view...

"may submit claims for expenses or benefits for the remainder of the Plan Year or until the Cafeteria Plan Benefit Dollars allocated to each specific benefit are exhausted"

First, I would take "may submit claims for benefits for the remainder of the Plan Year" to NOT limit or restrict such claims to only prior to the participants death. Prop Reg 1.125-1 Q&A-4 does not impose such a limit and absent an explicit limitation in the plan language, I couldn't support one.

Second, "until the Cafeteria Plan Benefit Dollars allocated to each specific benefit are exhausted" tells me that the plan drafter intended for the spouse/beneficiary to optain the full benefit available to the participant under the plan. This generosity in the language would further support my interpretation that the plan drafter did not intend to limit or restrict what is available to the spouse/bene.

Third, "If a Participant dies, his partipation in the Plan shall cease" to me is merely a mechanism to prevent further deductions for the unfunded balance of the participant's account (such as from post-death benefits). The participant's lack of participation does not preclude the special level of participation provided to the spouse/bene under 1.125-1 Q&A-4.

[Guest jhall]

These provisions appear to be relatively standard provisions in prototype SunGuard Cafeteria Plan docs. I saw an earlier version (going back to early 2000s) where the "Death" provision specifically said "However, such Participant's beneficiaries, or the representative of his estate, may submit claims for expenses incurred prior to death for the remainder of the Plan Year or until the Cafeteria Plan Benefit Dollars allocated to each specific Benefit are exhausted."

The recently revised version strips out the "expenses incurred prior to death" line and has provisions like the one initially quoted. Also, like the plan provisions quoted above, the Termination of Employment section immediately preceding the "Death" section in the Plan expressly provides that termination for reasons other than death are governed by that section which includes references to COBRA rights for Health FSA benefits. In other words, the separate Death section would appear to not be subject to general COBRA requirements in order to preserve certain continuation coverage.

Although I agree that the provision is not as express with its intent as it might be, it does appear to be an attempt to allow reimbursement of any and all claims incurred by the participant up until death plus any expenses incurred by his spouse or eligible dependents at any time during the year without having to have the estate / beneficiaries formally elect COBRA in order to continue participation. That is to say, if a participant died with an "underspent account," the estate could submit expenses for the participant during usual run-out period and/or the spouse and dependents might submit expenses for the remainder of the year or until the account was exhausted, whichever occurred first. If the spouse and dependents didn't have expenses prior to death and the participant's expenses didn't eat up the account balance, they should be able to submit expenses late in the year---presumably without having to elect COBRA and pay in any additional amounts in order to retain that right. Seems that doesn't cost the employer anything because they only get extra reimbursement period for as long as the account has amounts remaining.

Does that make sense?

If so, I am still troubled by the seeming exclusion of this provision from the Plan's other references to COBRA rights. I am assuming though that if the spouse and beneficiary wanted to continue participation of FSA on a COBRA basis that they could and that there are no special rules in the event of death that would prevent that.

Maybe an example would help clarify my concern. Participant elects to set aside $2400 per year / $200 per month. Participant dies after February 28th after 2 months with $400 in the account and no prior reimbursements. Just for ease of illustration here let's assume that there are no reimbursement expenses related to his death or for his dependents. The current drafting would seem to permit the dependents to simply seek reimbursement for the $400 in the account without electing COBRA etc. and would give them until year end. Without this special death provision though, the more general "Termination of Employment" provision (e.g., if partiicpant simply quit his job and went to work elsewhere) would appear to require them to elect COBRA and pay additional amounts into the plan in order to retain their right to submit post-termination expenses. If that's the case, then this seems an extra "death benefit" over the normal termination situation and the rules applicable there.

I am assuming, however, that the spouse / dependents in a death case could still elect COBRA and continue under that regime if they desired to be able to get more than the $400 in the account. For example, suppose spouse wishes to have lasik after the funeral and wants the full $2,400--she could pay the necessary COBRA premium and pay in an extra $200 for March in order to get the full $2,400 rather than just the $400.

Does that all seem logical? (I ask all of this because the Plan's special "death section" seems to imply that the normal COBRA rules might not apply--or is at least not drafted to expressly provide for that. If there is a special rule in the case of death that alters the normal COBRA rules for FSAs I would appreciate any information anyone is able to provide.)

Thanks.

[Guest Livia]

Since the participant's participation ends at death, that ends his period of coverage. I think that means the plan should not be reimbursing expenses for the dependents that are incur after the participant's period of coverage ends. See Prop. Reg. Sec. 1.125-6(a)(2). They would have to elect COBRA to use those funds.

[QDROphile]

The plan provisions describe a post-death run-out period for submitting claims for pre-death expenses. They do not extend the period of coverage for expenses of dependents. I agree with J Simmons that there is a "duh" factor here and it is the fault of the drafter that possble impressions to the contrary are created.