Flexible Spending Account rules regarding Terminated Employees

[Guest loricraun]

I hope someone can help me with this question.

Example: Plan participant has $500 in her Flexible Spending Account and terminates employment.

I have always been under advisement that the employee can only file claims for eligible expenses incurred prior to her termination date. Any monies not claimed are lost.

Question: I have recently heard (from a number of sources) that an employee can choose to continue contributions (on a post-tax basis) to the employer in order to extend his/her termination date from the plan.

The terminated employee has no tax advantage in making this additional contribution, but is effectively allowed additional time as an active participant to incur the necessary claims to take out the remaining account balance.

Can anyone tell me if this this legitimate?

[Joe Priselac]

It is not only legitimate, but required under COBRA. A health FSA is treated like any other health plan. When a participant in a health FSA leaves empoyement, a proper COBRA notice should be sent notifying that participant of their rights. Those rights include the ability to continue participation in the FSA. I am assuming that the employer is large enough to be covered under the COBRA rules.