Flexible Spending for employees who resign

HCCADC · June 2003

I hope this hasn't been posted and I missed it. When an employee quits employment and has contributed to the Flexible Spending account, what is required of the employer? I thought I read somewhere it is covered under something similar to COBRA?? I am drawing a blank here.

sandra_d · June 2003

If the employee participated in a medical flexible spending account, and they have not received reimbursement for everything that they have contributed into the account by the time they quit, they can elect to continue it through COBRA so that they can get their money out. They are not entitled, nor would it make sense for them, to continue under COBRA into the new plan year since they would be paying after-tax dollars. It is only an option when they have money yet to collect during the current plan year. Dependent care is not eligible for continuation under COBRA. The best explanation I've gotten for this discrepancy is that dependent care can generally be planned - you know you will have "$x" each week/month - therefore, at any given time, your dependent care expense versus what is available in reimbursement from your account, should be the same or similar. This is not true for medical expenses, thus the ability to continue participation in order to get your money reimbursed.

There was actually a formula released (by the DOL or IRS) to determine whether an employee could continue participation in the medical FSA, but basically it does come down to the question of whether they still have an ability to receive benefits from the account - if so, then they have a right to continue.

HCCADC · June 2003

Thank you so much! That helps. I have been letting previous employees continue to get reimbursed in the plan year for FS, so I guess I am covered!

NaeNae55 · June 2003

Just one thing. You say you are letting the employees continue to get reimbursed, that is ok as long as the following conditions are met:

1) If they don't pay a COBRA premium:
a) You have a runout period and they submit their claim before the
deadline
b) The dates of service are before their term date (according to
your plan document)

2) If they pay a COBRA premium
a) The same as 1) above except you have a new term date that
corresponds to their premium payments

You probably meant these conditions, but since I wasn't sure I figured I'd better cover all bases.

Good luck!

Flexible Spending for employees who resign

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