FSA Distribution -- Administration Error?

[Guest schlin96]

I understand that FSA plans are "use it or lose it" with regard to balances and that employers cannot refund balances to the employee, but I have also heard that in certain circumstances employees can get money back from their FSA if it is a result of administration error. Any insight on this topic?

[QDROphile]

It is possible. The possibilities are completely dependent on the particular facts and circumstances.

[Guest schlin96]

It is possible. The possibilities are completely dependent on the particular facts and circumstances.

I figured - I don't have the facts just yet so generalities help.

Are there laws or regulations as to what kind of circumstances would permit distribution due to administration error? Or defines administration error in some way? I appreciate your help.

[J Simmons]

Regs or laws? No. There are reported to be general information letters from the IRS that talk about corrections being permitted when there is 'clear and convincing' evidence of an mistake. Some reports of these informal letters suggest that the mistake by the EE must be one of impossibility. For example, an EE with no dependents elected a day care flex account. Must have been an error. Other reports broaden this to any mistake of fact that can be shown by clear and convincing evidence. Yet other reports even allow mistakes of law--misunderstanding the cafeteria plan and flex plan rules when the election was made.

If the error was made by the ER, then it is generally thought that the ER can take certain steps to correct that. For example, if the EE's written election shows a health flex account elected of $600, but the ER wrongly implemented it as a $450 one for the year, arguably part way through the year when the mistake is discovered health expenses incurred before the error was corrected would qualify for reimbursement, and the payroll reductions to offset the cost of the health flex account could be upped so that by year's end they will total $600. In fact, if the cafeteria plan is subject to ERISA, such a correction is arguably required so that the plan administrator meets its fiduciary duty to operate the plan as written--which includes implementing elections as made.

[Guest schlin96]

Regs or laws? No. There are reported to be general information letters from the IRS that talk about corrections being permitted when there is 'clear and convincing' evidence of an mistake. Some reports of these informal letters suggest that the mistake by the EE must be one of impossibility. For example, an EE with no dependents elected a day care flex account. Must have been an error. Other reports broaden this to any mistake of fact that can be shown by clear and convincing evidence. Yet other reports even allow mistakes of law--misunderstanding the cafeteria plan and flex plan rules when the election was made.

If the error was made by the ER, then it is generally thought that the ER can take certain steps to correct that. For example, if the EE's written election shows a health flex account elected of $600, but the ER wrongly implemented it as a $450 one for the year, arguably part way through the year when the mistake is discovered health expenses incurred before the error was corrected would qualify for reimbursement, and the payroll reductions to offset the cost of the health flex account could be upped so that by year's end they will total $600. In fact, if the cafeteria plan is subject to ERISA, such a correction is arguably required so that the plan administrator meets its fiduciary duty to operate the plan as written--which includes implementing elections as made.

Ah great, thank you, that helps quite a bit. I'll see if I can snuff out some notices.