Medical Flexible Acct payout for deceased emp

DB

An employee participating in the Medical Flexible Spending Account through our Section 125 passed away in May 2004. At the time of her death she had not submitted enough in medical receipts to cover the deductions that had already been made from her check.

The executor is asking me if the balance can just be paid out or if receipts have to be submitted.

The SPD states who I make post-mortem payments to (the estate) but not how. Since it doesn't provide any special instructions I'm assuming receipts must be submitted as normal by the executor.

Has anyone had a similar situation or have an IRS reference so I don't have to read the whole law?

Down_the_Middle

The reg's will tell you to treat the dollars (for which no receipts are avail)as lost and become property of the MSA fund on the same basis as funds not used within the time period. Whether or not you choose to do this----or refund the entire amount is your org's call.......

irenesmsaclaims

I don't think that you can refund the contributions just because of the death, absent qualified expenses. The dollars can be reimbursed with receipts of expenses incurred prior to the death and during the current plan year. There may be case law relative to this kind of situation, and it would seem appropriate to have the executor/attorney do this kind of research. A plan could be disqualified if it doesn't follow the rules.

marc

Another little wrinkle to consider is the rights of any dependents who are covered. This acts similar to Cobra rights and health insurance. I beleive each dependent is supposed to receive a notice of their rights and how the plan works with respect to submitting the receipts and the time frames. Also, they all get to go after the full amount the EE had arranged to deduct for the plan year, not just the amount that has been deducted. Your plan should spell all of this out.

irenesmsaclaims

Yes, COBRA applies to flex plans, and there is the uniform coverage/always available rule, but they still have to have qualified expenses/receipts to be reimbursed. If the surviving dependents elect COBRA, they have to continue making contributions after-tax until the end of the plan year. Otherwise, it has to be expenses incurred prior to the termination of participation (death).

Don D

It's not as if the receipts are not available. In fact, I think you indicate that they are available. The IRS requirements do not state who must submit the receipts, only that they be submitted and meet plan requirements in order for reimbursement to follow. I don't see a problem with the administrator of the estate submitting them and having them reviewed as if the employee had submitted them. This program doesn't have the intent of ripping off the estate of a deceased employee.





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