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Wondering if others have dealt with this idea or can anticipate any hurdles --

Say a company had a standard dependent care FSA program, no pre-tax employer contributions to the employee accounts.  Company now wants to establish a fund for employer contributions but subject to taxes, for participating DC FSA employees but not directly to their DC FSA accounts (so to avoid any pre-tax issues plus to avoid being considered towards the employees' $5k/$2.5k contributions limit).  Fund would be fixed per year at $xx total (decided at the beginning of the year or end of prior year), and then allocated between participants based on the # of participants in the prior plan year (as if it's a pool to be divvied up based on prior year participation).  Eligible participants include anyone who participated in the prior plan year and is still employed at the beginning of the applicable year.

Anyone seen this before, or something similar?  So long as it's post-tax and not directly to their accounts, any hurdles?

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  • 2 weeks later...
On 1/19/2022 at 10:07 AM, Brian Gilmore said:

I've never seen that specific approach, but at a high-level it sounds basically like the trendy LSA benefit that's had pretty widespread adoption in the past couple years.  Here's an overview: https://www.theabdteam.com/blog/lifestyle-spending-account-compliance-considerations/

Thanks!  We ended up at the same conclusion, so helpful confirmation - post-tax, keep it out of their direct accounts, exclude from eligibility any medical expenses or any other benefits otherwise reimbursed under another company program (like tuition assistance).

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