Co-mingling of cafeteria plan funds.

[Guest msearle]

Assume you have 10 participants in a cafeteria plan which provides a medical flexible spending account. If each participant contributes $25/month and its March, there would be $750 in the account. Then, if one participant has a legitimate $300 request, he/she is entitled to the full amount even though he/she has only contributed $75. Question - Will a TPA look at the entire amount of $750 and pay the individual from this amount; or will the TPA go to the employer and request an additional $225 for the individual only recognizing individual accounts?

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[GBurns]

The TPA goes to the employer.

[Joe Priselac]

In the scenario you outlined the TPA would not need an additional infusion of funds to pay the claim. These programs are typically operated by the employer opening a checking account that the TPA writes checks against when reimbursing participants. The funds are in essence co-mingled because these benfits are paid out of the general assets of the employer.I am curious if anyone administers their medical FSA the way GBurns described.

[Lisa Hand]

No.

[Guest msearle]

I was able to contact Kris Keller of the IRS in the Employee Plans Branch. She works for Harry Becker. When I posed the question to her, she said they (the IRS) has not made any rulings on administration in this area. She said it was not a problem to pay for it out of the "general assets".

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[GBurns]

Joe... What is the difference between my scenario and yours. In both cases if the balance in the account is not sufficient it is repleneshed from the general assets. In all cases it is the employer advancing any temporary shortfall.

[Joe Priselac]

GBurns,

There is a huge difference in our approaches. The point of msearle's question, as I read it, was centered on whether health FSA plans are operated on an allocated or unallocated account basis. Your answer to the specific scenario msearle layed out gave the impression that these plans are operated on an allocated account basis similar to a 401(k) plan when in fact they are not. Remember a health FSA in its operation is nothing more than a 105(h) plan. When an employer sets up a self-funded health benefit the funding of that health benefit is paid from a common comingled account similar to a defined benefit pension plan. I agree that the employer is ultimately responsible financially, but as the old saying goes, the devil is in the details.