FSA and Terminations

System

If we terminate an employee who has an FSA balance, does the "use it or lose it" rule apply, or must we return the unused balance?

If the "use it or lose it" rule applies, does anyone know where I can find this stated in a legal source?

Thanks!!

dbutton111

I can't put my hands on the regs at the moment but this should also be in your plan document.

FSA's are use it or lose it, even for terminated participants. Most plans allow participants to submit reimbursement requests for a specified period of time after the termination date of the participant (generally 30-90 but I have seen them allow it up to 90 days after the plan year ends).

In the case of health care FSAs they can always continue under COBRA to use up the remaining balance.

Debbie

HR in Okla

Yes, use it or lose it. On our plan, which I think is true of most, you can submit receipts for expenses incurred prior to the termination date for 90 days after termination, but in order to submit receipts for expenses incurred after termination, you must elect COBRA on an after-tax basis. Then you continue contributions as long as it takes to accumulate receipts and be reimbursed for your contributed amount.

Those who have been reimbursed the full elected amount prior to termination, even if they haven't paid in the full amount, keep it. Insurance covers plan losses.