Starting an FSA at the end of a plan year

[Guest ip0905]

I have an employee who is expecting a child on December 30 of this year. They want to elect the FSA plan to get reimbursed for hospital charges the will occur in 2011. Per the plan, the employee cannot elect until the date of the event at which point there will be no payroll run for us to deduct the election. I understand the the employee can elect the FSA, but can I take payroll deductions in 2012 for 2011 expences due to the circumstances? If someone can point me to regulations around this or give me insight, I would appreciate it.

Thank you.

[QDROphile]

Expenses incurred in a plan year cannot be covered by amounts deferred in a subsequent plan year, subject to some very limited exceptions. See Prop. Treas. Reg. section 1.125-5(a)(1), although you will have to get acquainted with the specialized terms used in the regulation to get the meaning relevant to your situation.

[Guest morris]

QDROphile is right. You can't use the new plan years FSA dollars for expenses incurred in a prior plan year.

I'm wondering if you could DELAY the last paycheck until the last minute election is made and alter it accordingly. The only problem with this is--you've removed the element of risk. FSA plans require that there be an element of risk for both the employee and the employer.

[MARYMM]

Maybe the child won't be born until 1/1/12. Employee loses the tax deduction for this year, but is able to include hospital expenses in the FSA election amount for 2012.