FSA: Employee Funding EMPLOYER'S Contribution?!

[Guest KRH2010]

I have a very complex question. I hope someone can answer it. Here is the situation:

* Through my employer, I have an FSA. During my employment, I have never elected that money be voluntarily withheld from my pay and placed into this FSA. In other words, there is no "salary reduction agreement."

* The employer places money each year in the FSA. Here is where that money comes from:

- Employer contributes a certain amount of money towards my health care. However, the cost of the health care does not consume that entire amount.

-Therefore, employer places the left over amount—about $730 for 2010—in the FSA.

* Employer has been sold to another company. The existing FSA will continue through the end of 2010, then cease to exist.

* Employer now says it will pay only part of the $730 for 2010. This amounts to about $410. Employer states that I will be forced to personally pay the remaining $320 through the end of 2010.

Question: Is this legal? To me, it sounds like I am being asked to fund what is essentially an employer contribution. If the employer agreed as of January 1, 2010 to place $730 in that FSA, I believe it is obligated to do so.

Thank you for your comments.

[LRDG]

The plan would have to be amended to adjust the ER FSA credit amount. If as you have indicated, you did not enter into a salary reduction agreement, but made your FSA election based on the available ER credits, the FSA amount of $320 is not covered by a salary reduction agreement.

Although there may be other considerations I am not aware of, a better solution for reducing the ER FSA credits mid-year would be to amend the plan and reduce participants annual FSA funding via ER credit by a corresponding amount.

For example, complications for participants who mid-year claim entire amount of annual FSA elected funds consisting of ER credit amount and the employee salary reduction amount to the FSA; or participants like yourself who did not enter a salary reduction agreement but have claimed the annual ER credit FSA election, claimed and reimbursed mid year, complicating any reduction to the ER FSA credit.

Again, the $320 is not covered by salary reduction agreement, and it seems unlikely collecting the reduced ER FSA credits from participants would be in compliance with IRS regs.