Sale of assets; termination of employment; unused benefits

[Guest John Nelson]

Company A maintains a FSA. Company A sells assets of Division B to Company C. All employees of Division B terminate employment with Company A and become employees of Company C. Many of these employees have unused benefits (i.e., the employee's salary reduction contributions to the FSA have been greater than the amount of eligible expenses the employee has incurred and been reimbursed) under Company A's FSA. The affected employees would, of course, like to continue submitting claims for reimbursement. Company A, however, is telling them that these unused benefits will be forfeited because the employees have terminated employment. What rights do the affected employees have to the unused benefits? Thanks.

[Lisa Hand]

If Company A is subject to COBRA then all terminated employees with positive balances should receive COBRA notifications for their medical FSA. There should also be a close-out period for claims incurred while employed detailed in the plan documents.