FSA not deducted

Maggie A

If an employee signs up for an FSA, but the employer neglects to deduct the money from their account, who is responsible for making up the shortfall? This person signed up for the benefit in January, and it was just discovered that the money was not deducted from her paycheck. (She has direct deposit and has apparently never looked at her paycheck). The employer has offered her the option of making up the shortfall or just starting fresh from this point. She feels that her employer should deposit the money into her account since it was their error.
What do you think?

marc

But the EE got to spend the money that was overdeposited in her account. She should not benefit from this error. If the amount is significant, give her some time to make up the difference by spreading out the extra deductions over the remainder of the plan year. That will make the tax-free treatment work out properly as well.

Pricehcs

Agreed. If she is interested in reaping the benefit of FSA dollars, she ultimately has to give those dollars first. Spreading the deductions out, even through all of the remaining 2004 payrolls if necessary, is the way to go.

#1 thing a consultant shouldn't say: "I could tell you the answer right now, but we're committed to a three month project..." #-o