Medical FSA Benefits following sale of division

[kcin.regnad]

What is the name of your state (only U.S. law)? VA

During the open enrollment period in Nov 2007 I elected to have $4800 withheld from my paycheck at the rate of $400/month for the Medical FSA plan. The company's FSA operates on a calendar year basis. Our division was sold to another company on 1 April (by which time $1400 had been withheld from my paychecks). I incurred ~$2500 of reimbursable expenses in the first 3 months of CY 2008. It took until July of this year to get the insurance reimbursements straightened out so I could file claims for the correct amount.

The company that administers the FSA plan for my former employer changed my FSA election from $4800 (elected) to $1400 (actually withheld) following the sale of the division and is refusing to reimburse me for ~$1100. My understanding is that just as I am at risk of losing funds if I don't incur expenses equal to my withholding, so also is the company at risk of incurring expenses that will not be matched by withholdings if I incur expenses early in the plan year and terminate employment before withholdings match expenses (which I did by virtue of being sold).

Can someone point me to the relevant law and/or regulations that makes it explicit that the company is liable up to my full election even if I terminate early? While the administrator is being unreasonable, my previous employer has not been (at least not historically) and I think that citing chapter and verse of the regulations will quickly bring this to closure.What is the name of your state (only U.S. law)?

 

[Beth3]

The good news is that you are exactly correct. Since your planned deferral was $4800, your employer was "on the hook" for the full $4,800 once you incurred that or any portion of that amount beginning January 1.

The bad news is that the chapter and verse you're looking for is in the IRS Tax Code - section 125(b). Poking around the IRS website and tax codes is not for the faint-hearted. If you do some searching on-line regarding Flexible Savings Accounts, I expect you will find a number of articles from very reputable sources (i.e. some of the big consulting firms who specialize in employee benefits) that articulate the point you are making. Print those out and take them to your employer. If they still balk at paying you the money you are owed, then tell them they're leaving you no recourse but to file a complaint with the federal Department of Labor. (That should be enough to get them to do their own research to determine the correct and lawful way to adminster FSA Plans. If it's not, then by all means file a complaint.)

Good luck.

 

[kcin.regnad]

Forgot to thank you

I am not faint of heart so I took your pointer and dug into the code. The comptroller at my former employer is a reasonable man (and the notion that jerking me around like this could jeopardize the tax status of the entire plan was not a trifling risk) so he chose to make me whole. Thank you for validating my perspective and pointing me to the sources I needed to back it up.

 

[Beth3]

You're very welcome. I'm glad your employer resolved this and in accordance with the law.