FSA and COBRA
jmyowell
4 Posts
I work for a small firm that doesn't have an official HR Dept. I try to keep current with HR issues, but I'm not trained in that field. I probably know just enough to be dangerous. Scary. Anyway....
If an employee is terminated and they have funds in their FSA account do we have to offer them the opportunity to continue with the FSA under COBRA. If so, do they pay the remainder of the funds due all at once. If they had a lot of money in the account I could see where this would make since, but if they don't have a lot in the account it wouldn't make since to pay administrative costs on it. I think I'm missing something. Can anyone give me any insight in to this subject. Thank you.
If an employee is terminated and they have funds in their FSA account do we have to offer them the opportunity to continue with the FSA under COBRA. If so, do they pay the remainder of the funds due all at once. If they had a lot of money in the account I could see where this would make since, but if they don't have a lot in the account it wouldn't make since to pay administrative costs on it. I think I'm missing something. Can anyone give me any insight in to this subject. Thank you.
Comments
I'm under the impression that a terminating employee can elect to continue their flex plan (cobra) but they have to pay the remaining year election amount in full. No dropping after you have paid the amount.
Can you point me to any regulations, etc. that say different?
First of all, your 1st paragragh has me confused. A terminated employee can't keep his/her FSA going anyway, unless they elect COBRA. Secondly, while under COBRA, they have the right to drop it at anytime.
As far as regulations, the whole FSA thing is governed and enforced by the IRS. They are the ones who come down from the mountain with all the rules and changes and so forth.
COBRA must be offered only if there is a positive balance in their account. If the ee doesn't elect COBRA, they can still submit claims through the end of the plan year for expenses incurred through their termination date.
This would only be offered to those who had paid in more than they had taken out in the current plan year.
I actually had to do this once. The employee planned to have a large expenditure. They had it done between leaving our employ and starting at the new job. They paid the COBRA premium and submitted a claim in the same month for the FULL annual election. It was paid and we were left with a negative balance as they immediately dropped the COBRA coverage. The negative balance was a whole lot less trouble than handling the COBRA. 8-|
Nae
I've sent an email to our TPA to find out exactly how it works. I'll let you know what I find out.
Thank you to all for the information you have provided. You may have just saved me from making a mistake! xhugs
I contacted our TPA and YES you are all correct. From this point forward we are hiring our TPA to provide the Flex Cobra for us.
I thank you all for the information and help you provide!
xclap
Offer Cobra for medical FSA accounts in certain circumstances only: if the departing employee has more left in the account that he/she has used through the term date, offer Cobra, and then only until the end of the current benefit year. If the departing employee has used more than what the rest of the year's contributions would equal, do not offer Cobra.
Example: Employee elects $100/month for FSA. Over a 12 month period, $1,200 would be in the account. The employee has access to $1,200 as soon as his/her first payment is made by payroll deduction. The employee loses eligibility to participate in the FSA half the way through the year and has presented no receipts yet for reimbursement. Upon termination of employment, the employee produces receipts with appropriate dates of service for $400 and is reimbursed. Because the potential balance ($800) exceeds what is used, offer Cobra. As soon as the employee makes the first month's payment of $100, he/she has access to the $800 balance again--can produce receipts with appropriate dates of service (plan start date through 1 month post termination) and be reimbursed for the full $800). Suppose all the details are the same except the employee declines Cobra, the employee risk comes to fruition in that the employer gets to keep the $200 undispersed. Now, switch the $400 & $800. Everything else is the same, except the employee was rightfully reimbursed for $800 by term date. Do not offer Cobra as more of the FSA has been used than what would be left in the account.
Make sense?
Seems odd, but there is a benefit to a savvy employee on accepting Cobra. He/she can get more for less by making one (post tax) FSA contribution to gain access to a full year's worth of money and leave the employer holding the bag.