Restricting FSA Reimbursements

[Guest stclairm]

One local colleague indicates that the IRS requires reimbursements to be honored for any plan participants up to the total of the committed annual contribution. Another says the company is not required to pay out reimbursements in excess of the amounts withheld year to date from the participant's pay checks - it's purely at the company's option.

For example, a participant has had $400 withheld from their pay through March. They submit expenses of $650. Colleague one says it must be paid. Colleague two says it's the company's option - not required by the IRS.

IRS Pub 969 sees to match the advice of colleague one, but that might mean tapping assets outside the plan. I'd like to do it the right way. Can anyone point to the definitive answer on this one?

[J Simmons]

Check Prop Treas Reg § 1.125-5(d)--although this is in a proposed regulation, it is a reiteration of a longstanding rule.

[QDROphile]

If you are talking about health FSAs and colleague two understood that, then if colleague two is in the business, he or she should get out. If colleague two is not in the business he or she should shut up about things he or she knows nothing about. You cannot be too harsh with colleague two about this. This is fundamental baby stuff. You should never consult or believe colleague two again. This is such a bad mistake that it is fatal to credibility.

[oriecat]

It's called the Uniform Coverage Rule. It applies to Health FSAs, but not to Dependent Care FSAs.

[GBurns]

It is amazing that after more than 25 years of section 125, there are still opinions such as that of colleague 2.

[Guest sniffles]

Maybe colleague 2 is confused about the account and question you are asking.

Anyway, for a Section 125 Flexible Benefit Plan - Health Care Reimbursement - the WHOLE election is available from the 1st day of the year for reimbursement.

For a Section 125 Flexible Benefit Plan - Dependent Care Reimbursement Account - reimbursements are ONLY up to the ACTUAL (Balance in account) Amount withheld to date.