FSA Forfeitures

[Chaz]

Taking into account both the proposed cafeteria plan regulations and ERISA, can an employer use health FSA forfeitures for one plan year to offset medical plan premium increases in the next plan year?

[J Simmons]

The ER can use the forfeitures for whatever the ER wants, provided that the amount that forfeits from an individual EE's flex account is not paid to just that EE, rolled forward for just that EE, otherwise used to provide a benefit for just that EE, or applied to benefit EEs in proportion to the amounts that each so forfeited.

So if the flex account forfeitures are used to offset the next year's cost of group health premiums across the board, then yes. If you are hoping that a specific EE's flex account forfeitures can be used to reduce just that EE's premiums in the group health plan the next year, then no.

[Chaz]

An example in the proposed cafeteria plan regs seems to indicate that only employees who participated in the FSA for the plan year in which the forfeiture occurred can benefit from a reduced salary reduction (i.e., lower premium) in the next plan year. More than likely, some of the participants in the medical plan in 2009 will be different than the participants in the FSA in 2008. Is that a problem?

[J Simmons]

An example in the proposed cafeteria plan regs seem to indicate that only employees who participated in the FSA for the plan year in which the forfeiture occurred can benefit from a reduced salary reduction (i.e., lower premium) in the next plan year. More than likely, the participants in the medical plan in 2009 will be different than the participants in the FSA in 2008. Is that a problem?

No, that would not be a problem.