FSA expenses reimbursed after termination because of grace period?

[bcspace]

I have a situation in which an FSA election is funded exclusively by employer contribution. The employee has terminated a month or so before end of the plan year.

The employee claims that they can continue to incur expenses because of the grace period. My understanding is that unless the employee goes COBRA, they cannot be reimbursed for expenses beyond the termination date whether or not a grace period has been provided for in the plan. Of course if they had terminated after the end of the plan year but during the grace period, they could still incur reimbursible expenses.

What is the correct answer? Can the employee be reimbursed for expenses after the termination date in this case?

[J Simmons]

I agree with what your understanding is, bcspace, not the terminated employee's--but make sure that the plan document did not intentionally or inadvertently do what the terminated employee claims.

[LRDG]

I agree. The participant's plan year ends on the date of termination absent a cobra election. Dates of service for honoring claims is services preformed no later than the date of termination, absent a Cobra election.

Based on the unusual funding arrangement, confirm that the doc doesn't have other unusual terms.

Curious why hasn't this participant elect Cobra? Particularly since the FSA is employer funded. Has anyone advised the participant that claims would be honored through the end of the plan year with Cobra? It doesn't make sence that the participant wouldn't agree to Cobra under the circumstances if it was explained? Unless it's a disgruntled employee.

[Guest parrot87]

A medical FSA only has to offer cobra based on a hypothetical account.

from what i understand: COBRA doesn't have to be offered unless there is a net positive balance in the account. for example:

If Frank elects a annual contribution of $1200, and Frank's company uses a monthly pay period....then the employee gets credited $100 per pay period for the purposes of determining cobra eligibility (although the full $1200 is available from day one).

Anyway, lets just say Frank has been working for 4 months, has not used any FSA money, then leaves the company. Since Frank has a net positive balance of $400, he is COBRA eligible. If Frank has already rung up more than $400 in FSA usage, he is not Cobra eligible. I'm wondering if the employee is saying he has a grace period to accrue funds....so that he can be cobra eligible.