Medical FSA Cost Recovery?

MrCreosote

We are thinking about introducing an FSA for medical care and dependent care. My understanding is that we would face a small risk with medical, if an employee incurred a large expense at the beginning of the year and then quit before contributions caught up to the expense. My understanding was that that was why everyone put caps in their plans, typically $3,000 or $5,000.
Our VP of Finance is arguing that this is not a concern because we can deduct money from last pay. I disagree because the last pay would probably not be enough to match the cost. Also, Illinois restricts deductions from final pay and I'm sure we would lose a claim filed with Wage and Labor, regardless of any disclaimers attached. What I don't know is whether repayment is also restricted by the tax code. Does Section 125 address this? Do you just write off the expense in such circumstances or try to collect?

LindaS

The risk above is the risk employers take when offering FSAs and that is why most employers have limits. As far as deducting the remaining monies from the last check, I would NEVER think of deducting something from an employee's check without their express, written consent.

MrCreosote

[font size="1" color="#FF0000"]LAST EDITED ON 10-23-03 AT 02:19PM (CST)[/font][p]Thanks. Do you know where in Section 125 or related publications it says that the employer can not recover funds from an employee, by whatever means? I'm trying to convince an accountant and I need a law or regulation or official explanation to cite. What if an employee voluntarily offers to pay back the difference, just because they think it is the right thing to do?