Flexible Spending Account Question

[crosby1]

What is the name of your state? VA

I elected to have $2000.00 put into my FSA for this year (2006). I was part of a round of lay-offs on 3/2/06. As part of my lay-off package, my employer agreed to carry all medical benefits through 5/31/06 including access to my FSA. Including what was put into the FSA as part of my severance package, there was about $900.00 in the account as of the end of March.

I continued to use the account via the debit card that was provided and had no trouble with any charges. I used the full $2000.00 even though there was only $900.00 actually in the account.

Please don't tell me I did something wrong; I truly don't believe I did. It is my understanding that employees have the right to use the annual election whenever they wish. If I wanted to use the $2000.00 on January 2nd, I could have done so.

However, now my ex-employer is insisting that I pay back the difference between what was in the account (900.00) and what I used (2000.00). I think this is what is illegal. If I used it all on January 2nd, and got laid off on January 3rd, wouldn't the employer be out of luck?

Aren't these accounts set up as "use-it-or-lose-it"? If there's money left over at the end of the year that I don't use, I lose it. If I leave, or get fired, or get laid off and have already spent more than what was put in, doesn't the employer lose out?

 

[weenor]

What is the name of your state? VA

I elected to have $2000.00 put into my FSA for this year (2006). I was part of a round of lay-offs on 3/2/06. As part of my lay-off package, my employer agreed to carry all medical benefits through 5/31/06 including access to my FSA. Including what was put into the FSA as part of my severance package, there was about $900.00 in the account as of the end of March.

I continued to use the account via the debit card that was provided and had no trouble with any charges. I used the full $2000.00 even though there was only $900.00 actually in the account.

Please don't tell me I did something wrong; I truly don't believe I did. It is my understanding that employees have the right to use the annual election whenever they wish. If I wanted to use the $2000.00 on January 2nd, I could have done so.

True.....but

However, now my ex-employer is insisting that I pay back the difference between what was in the account (900.00) and what I used (2000.00). I think this is what is illegal. If I used it all on January 2nd, and got laid off on January 3rd, wouldn't the employer be out of luck?

No your account is set up on your estimated contribution, that does not mean that they have to pay out more than you paid them... You know this, you are just looking for free money...you know that that these accounts allow you to deduct money to pay these expenses pre-tax- THAT is the only advantage.

Aren't these accounts set up as "use-it-or-lose-it"? If there's money left over at the end of the year that I don't use, I lose it. If I leave, or get fired, or get laid off and have already spent more than what was put in, doesn't the employer lose out?

Again, NO, the decision is yours as to what you put into the account. All the administrators do is payout based on your estimate. Understand that this is an IRS account that is governed by federal statute and/or IRS reguation so that the administrators are bound. You are barking up the wrong tree- pay them back.

 

[cbg]

Sorry, but weenor is wrong in this case. The law is very specific; FSA health reimbursement accounts are use it or lose it on both sides.

You WERE wrong to spend money you knew you would never put into the fund. That is a form of theft, and nothing you can say will convince me that you were justified in doing so. While it is true that you could withdraw the entire amount on January 2, that is with the understanding that you will actually be there to make the contributions. Deliberately using money you knew you would not be there to contribute - no, that's not justified no matter how you try to spin it.

However, you are correct that it is a form of theft that you will get away with. The employer cannot require you to pay overspending on FSA accounts, just as you could not require the employer to reimburse you if you overestimated and had money left over in the account at the end of the year.

 

[weenor]

Sorry, but weenor is wrong in this case. The law is very specific; FSA health reimbursement accounts are use it or lose it on both sides.

You WERE wrong to spend money you knew you would never put into the fund. That is a form of theft, and nothing you can say will convince me that you were justified in doing so. While it is true that you could withdraw the entire amount on January 2, that is with the understanding that you will actually be there to make the contributions. Deliberately using money you knew you would not be there to contribute - no, that's not justified no matter how you try to spin it.

However, you are correct that it is a form of theft that you will get away with. The employer cannot require you to pay overspending on FSA accounts, just as you could not require the employer to reimburse you if you overestimated and had money left over in the account at the end of the year.

Thanks for the correction. I admit that I did not research federal statutes or code, but instead went with what our company told us. My bad... Could you direct me (generally) to the section (statute or reg) governing this issue. I would like to present the information to our firm administrator. Thanks again.

 

[cbg]

I have some stuff in my office; I'll try to post it tomorrow when I get to work.

 

[ecmst12]

I know I've accidentally overspent my FSA (due to being fired) and was never asked to pay it back (but they wouldn't have paid out any further claims either). Not exactly the same situation, but related.

 

[cbg]

That's what's supposed to happen. Both sides take the risk.

It is not impossible that the law will eventually change to permit unspent FSA dollars to be rolled over to the next year or paid back; there have already been some overtures on Capitol Hill to that effect. But as the law stands now, both employer and employee have use it or lose it limitations.

 

[ecmst12]

My current FSA changed this year to allow claims against 2005 money to be made until 3/15/06 (and that's service dates, we had until 3/31/06 to submit the claims). The law must have changed to allow them to do that, right?

 

[cbg]

If the law has changed to allow that, it's news to me. But it's possible; I don't administrate the FSA plan where I am so a change of that sort could have passed me by. I'll research and post with the information weenor asked for when I find it.

 

[cbg]

I didn't have a chance to track down the written material, but I did run your questions by my boss.

Weenor: I can't point you at the exact page, but it's part of Section 125 of the IRS code.

Ecmst12: evidently the law was amended a short time ago to permit a plan to be adopted to permit this. My firm chose not to do so as they thought the plan was confusing enough already, which is why I didn't catch it. As I said, I don't administer the FSA where I am, and the law has changed since the last time I did.