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HCFSA


Christine Oliver

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An employee goes on a leave of absence and chooses to continue having their HCFSA deduction taken from paid portion of leave but does not return to work. Does the HCFSA eligibility end as of the last day worked prior to the leave, or does it tie to the health insurance plan end date, which is last day of the month in which the employee notified us that they would not be returning to work? If eligibility ends as of the last day worked prior to the leave, how do you handle HCFSA reimbursements made while on leave? 

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I would say health FSA coverage has to continue through at least the date the employee gives the unequivocal intent of notice not to return.  Until then, the employee has the FMLA right to continue coverage.  So claims incurred through that notice date remain reimbursable.  The details beyond that can be a matter of plan design.

Here's the cites I'd rely on for that--

Treas. Reg. §1.125-3:

(b) Coverage. (1) Regardless of the payment option selected under Q&A-3 of this section, for so long as the employee continues health FSA coverage (or for so long as the employer continues the health FSA coverage of an employee who fails to make the required contributions as described in Q&A-3(a)(2)(iii) of this section), the full amount of the elected health FSA coverage, less any prior reimbursements, must be available to the employee at all times, including the FMLA leave period.

(2) (i) If an employee's coverage under the health FSA terminates while the employee is on FMLA leave, the employee is not entitled to receive reimbursements for claims incurred during the period when the coverage is terminated. If an employee subsequently elects or the employer requires the employee to be reinstated in the health FSA upon return from FMLA leave for the remainder of the plan year, the employee may not retroactively elect health FSA coverage for claims incurred during the period when the coverage was terminated. Upon reinstatement into a health FSA upon return from FMLA leave (either because the employee elects reinstatement or because the employer requires reinstatement), the employee has the right under FMLA: to resume coverage at the level in effect before the FMLA leave and make up the unpaid premium payments, or to resume coverage at a level that is reduced and resume premium payments at the level in effect before the FMLA leave. If an employee chooses to resume health FSA coverage at a level that is reduced, the coverage is prorated for the period during the FMLA leave for which no premiums were paid. In both cases, the coverage level is reduced by prior reimbursements.

29 CFR §825.209:

(f)  Except as required by the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) and for key employees (as discussed below), an employer's obligation to maintain health benefits during leave (and to restore the employee to the same or equivalent employment) under FMLA ceases if and when the employment relationship would have terminated if the employee had not taken FMLA leave (e.g., if the employee's position is eliminated as part of a nondiscriminatory reduction in force and the employee would not have been transferred to another position); an employee informs the employer of his or her intent not to return from leave (including before starting the leave if the employer is so informed before the leave starts); or the employee fails to return from leave or continues on leave after exhausting his or her FMLA leave entitlement in the 12-month period.

29 CFR §825.311:

(b)  If an employee gives unequivocal notice of intent not to return to work, the employer's obligations under FMLA to maintain health benefits (subject to COBRA requirements) and to restore the employee cease. However, these obligations continue if an employee indicates he or she may be unable to return to work but expresses a continuing desire to do so.

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Does your answer change if this was an employer approved non-FMLA leave, and the plan document states that employees remain eligible for benefits while on an employer approved leave of absence? I don't think it does, but I want to be sure that there are HCFSA regulations that supersede the plan document language?

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