Comments on: Employer Trying To Get FSA Overspend

By: Lloyd

Lloyd — Fri, 18 Sep 2009 14:49:39 +0000

There is no ethical dilemma here though. As others have said, there is mutual risk with an FSA that you BOTH agree to. Let’s turn it around. Let’s say the employer decides to lay you off. Do you think they’re going to pay you back for what you didn’t use? Of course not.

By: Hello

Hello — Tue, 02 Jun 2009 14:28:07 +0000

What an idiot. Pay back what you owe. You borrow money, you need to pay up now. Its such a wonderful employee benefit program. I use it all the time.

By: fer

fer — Fri, 13 Mar 2009 07:52:18 +0000

I almost lost $5000 to an employer by being signed up to a Flexible Spending Account in error. The employer had presented it as a Dependent Care Account and described it to the staff as a type of insurance available to cover subscribers in the event we have to leave work to care for an ill dependent. I’ll give this manager the benefit of the doubt and call it confusion. None-the-less, I had to fight to get my $5000 back when I terminated employment under the use it or lose it rule. I could never have used it if it had been a Flexible Spending Program for Dependent Care. I have no dependents!

To make matters worse, when the employer finally did send my refund, the Unemployment Benefits Administration arranged an eligibility review meeting with me to determine whether to treat this refund like “wages” and deny several weeks of check payments.

By: Tracey

Tracey — Thu, 12 Mar 2009 20:42:41 +0000

To Steve:

I have only participated in a flex spending account once and had put away about $500 of my own money thinking I had a year in which to use it all, only to learn that when enrollment came around in May, that WAS THE END of the year and I lost all of my money. Who says that is fair? Now I am in a position of having used that money (not all, but more than $400) for medical expenses and I am going to be laid off at the end of April because of the economy (my whole office in Atlanta is closing). If the rule is “use it or lose it”, then I think it is fair that sometimes the employee comes out ahead. Why should the company always benefit from the employee not using all of their FSA?

By: jim

jim — Thu, 17 Jul 2008 03:11:07 +0000

CJ – I would notify your employer of these extra payments, they’re not yours so they can claim them back once they audit and discover the error. It’s like getting extra paychecks, you only cause yourself headaches by using them.

By: CJ

CJ — Thu, 17 Jul 2008 03:05:46 +0000

Ok, you guys seem knowledgeable…

I left my employer at my own willingness in April of this year. It is now July and they are still depositing funds into my Dependent Care Account. Obviously, these funds are not coming from my pay because I no longer work there.

Can I make a claim against these funds through the flex company? If I do, could they come back at a later date and make me pay them back?

Will this have any adverse affects on me come tax time?

Thanks in advance!!

By: Sam

Sam — Thu, 06 Mar 2008 17:38:45 +0000

To fivecentnickel.com.

There is a plan that will allow you to take your money with you. It is called a Health Savings Account (HSA). HSA’s have become very popular in the last few years. The only issue that it is attached directly to a high deductible medical plan. The employer must choose to use this type of plan for their group plan. A lot of employers have an HSA and Traditional Plan in place for their employees to choose from. This plan allows employees and employers to contribute to this account on a pre-tax basis. You use this account to pay for all of your medical expenses including prescriptions. All of your Dr. visits (usually with the exception of a one annual exam paid at 100%) and prescriptions are processed towards your deductible (usually around $2,000) and you can use your HSA to pay for these charges. Once you have met your full deductible your visits and prescriptions are paid out at 100%I. If you have money left in the account the next year, it will just rollover.

By: Anonymous

Anonymous — Thu, 06 Mar 2008 17:25:04 +0000

As a Flexible Spending Administrator the employer takes on this risk when they decide that they want to implement a Flexible Spending Program for their employees. If the employee leaves they are not required to the pay the money back. The employer can request it, but cannot force the employee to do so unless this stipulation is documented in the company’s Section 125 documenation (which is not usually the case). This document should be easily accessible to all employees and a Summary of the Plan Document should be presented to you at the time you choose to take on a Section 125 benefit.

I know some may say it is unethical, but what about the employee that terminates and does not use all of their FSA money before they terminated and does not have enough claims to submit to receive this money. They lose it and the employer gets it back to use against Section 125 Administration Fees or a benefit that will apply to all of their employees?

By: Lyn

Lyn — Mon, 21 Jan 2008 03:51:24 +0000

I too think people should lighten up. We had this very dilemma. My husband was downsized two weeks into a New Year and only notified about four weks after open enrolment. That year we elected the maximum because our daughter was due to have a series of operations starting in January. Because of his severence package, his company provided our health insurance coverage through April, and instead of severance pay, they provided something called continuation pay through March. This alowed them to deduct our contribution through ten. When we submitted the EOBs for our daughters surgeries, we thought we would only colect that which we had paid in and we would not be able to take the taxable advantage that we planned for at open enrollment. That was not the case. The company reimbursed us, and with receipts for bandages, etc. and our bi-annual dental appointments, we were paid almost $4400, but yet we paid in only $1300. We tried to return the money and were told by the benefits administrator that the IRS would not allow them to receive the monies offered, nor for them to ask for it back. I, to, felt this was immorale for me to keep it, but after lengthy discussions with the HR administrator, she made me understand. It is a balance between all contributors. You can judge me for this if you choose, but only 1 individual can judge my heart and it is not any one who would be on the Internet. We did not enroll for the maximum deducation to take advantage of anything, beleive me, we would rather my husband have kept his job – just as the other 25 or so guys would have preferred. Yes, we benefited this year, but many years it has been the other way around. I do know that where there is an angel people wil find it – and in those cases, people are taking advantage. However, it is not my place to judge.

By: Steven

Steven — Sat, 24 Nov 2007 04:12:06 +0000

Kelly do you have links to the actual rule for proof. I wish to answer the citation on wikipedia.org see link below. If you go to the link please refer to the paragraph under the title “Pre-funding”

http://en.wikipedia.org/wiki/Flexible_spending_account

You may answer the citation yourself.

By: Pete

Pete — Wed, 31 Oct 2007 02:51:38 +0000

It’s interesting to read the moral/ethical dilemma expressed when you also hear employees complain that the “use-it or lose-it” provisions seem unfair. If both the “cashing out” and “use-it or lose-it” are within the law, isn’t this properly a two-way street. I would guess that some might say the ethical dilemma doesn’t exist on losing your unspent contributions, but I would argue that it does, if both actions are ‘legally’ okay. What I find disagreeable is that your employer will openly and honestly inform you about your legally justified potential for loss, but not the same about what seems to be your legally justified potential for gain. My employer actually said “I’m not supposed to tell you this…but” which really made me suspect THEY are the ones trying to gain.

By: Kelly

Kelly — Mon, 08 Oct 2007 17:24:30 +0000

I’m a benefits administrator and can tell you that an employer is NOT allowed to seek repayment of FSA monies as long as the employee’s claims were properly substantiated before they were paid out. (That’s not to say that some employers won’t try it anyway)

The people who are scolding and casting moral judgments need to lighten up. This isn’t a moral issue. It’s an IRS issue Most employees can’t predict during their annual enrollment period that they’ll be terminating employment in the following year. Most employees don’t even know how their FSA works, much less possess the savvy to elect the maximum contribution and schedule LASIK or orthodontics in the first week of January when they know they’ll be giving their two-week notice at the end of January. However, employers are aware that the risk is there and if it happens, they have no recourse against the employee.

the rules:
The uniform coverage rule outlined in the Section 125 regulations states that the maximum amount of reimbursement from a health FSA must be available at all times during the period of coverage (properly reduced as of any particular time for prior reimbursements).

The Use-or-lose rule of the Section 125 regulations states that an FSA must satisfy all the requirements of section 125, including the prohibition against deferring compensation. In general, as discussed under “No deferral of compensation”, in order to satisfy this requirement of section 125, all benefits and contributions must be used by the end of the plan year (or grace period, if applicable),or are forfeited.

Any gains enjoyed by the company as a result of forfeited FSA dollars (funds that weren’t used by employees) can be used to offset any shortages caused by employees who have depleted their FSA and terminate before the end of the plan year.

Essentially, this means that

By: Hookem

Hookem — Thu, 07 Jun 2007 04:46:40 +0000

If you change employers during the year can you get reimbursed for expenses that were not reimbursed from any other source prior to the start of your second employment? In othr words, if you start a second job and open an FSA there on June 1 can you get reimbursed for an expense incurred in May that was not reimbursed by your previous employer’s FSA?

By: jim

jim — Tue, 22 May 2007 15:49:55 +0000

You are definitely right in that you should judge an action’s ethical or moral correctness on the basis of who gets hurt because that’s simply wrong – the act is wrong on its own, not in who it hurts; but unfortunately people do justify things using this logic.

I’m not trying to justify overspending an FSA (I did this when I left my old job) in this particular case, just trying to answer a reader question. I do agree that spending money that is not rightfully yours is wrong and, if given a choice, I’d probably change what I did in the past but that’s beyond the scope of this particular post.

By: fivecentnickel.com

fivecentnickel.com — Tue, 22 May 2007 15:22:25 +0000

I faced this exact thing a few years back, and was never asked to repay the difference. In fact, I don’t think there was a mechanism for doing so if I had wanted to. As Art stated, the thinking here is that the use-it-or-lose-it clause makes it a wash for the employer (i.e., they get to keep unspent funds). I’d be willing to bet that the employer still comes out ahead, at the cost of employees that mis-estimate their spending. I’d much rather see a system in which you are allowed to carry the funds over to the next year, but your allowable withholding limit is then reduced by that amount. In that case, nobody is able to build a huge stash of cash in their FSA, and yet nobody gets burned.