Healthcare Flexible Spending Account

If an employee deducts $600 per year for the Health Care Flexible Spending Account, and is reimbursed for the entire $600 by July 2002 and resigns in August. Therefore, the full $600 has not come out of their paycheck for the year. Can we legally ask them to pay us back or withhold what they owe us from their last paycheck. This is exempt employee, and they are not choosing COBRA.

Comments

  • 12 Comments sorted by Votes Date Added
  • No you cannot seek reimbursement, the company takes the risk of this exact situation happening and the company loses. Also the employee loses if he doesn't use all the money set aside.
  • Actually, you can ask for reimbursement but you can't force it. Kind of like I can ask you to pay me $100 today but you have no obligation to do so. We have some ees who actually do pay it back b/c they realize they haven't paid it in and they feel a moral obligation to pay us back. We have other ees who are saavy to the legal risk shifting of this benefit and take full advantage...

    One way we minimize this risk is to cap the medical reimbursements at $1000/year.


  • We take the remaining money owed out of their last paycheck - per our CPA and the plan administrator. The form the employee signs at the beginning of the plan year state this. If they've already been issued their last paycheck and we haven't taken the money, we can ask. Some employees will pay it back.
  • Wow, that can get you sued if the ee didn't authorize the deduction from pay. You can always ask...but you can't force the issue. There is no way to ever force an ee to pay back a flex acct for health spending. ERISA views it like a risk shifting insurance plan. I'd get your accountant's recommendations in writing and then ask for his malpractice insurance carrier info for your file....
  • Lori,

    This may be a different situation...an employee left soon after making their election; they had not used any of their money, but we took the total election
    from their last pay check. It appears I was confused; how unusual! When the employee signs the election paperwork, they are authorizing us to deduct the remaining unpaid premium from their last paycheck. I'm assuming this is legal as both our CPA and the company that administers the plan informed me it was. I'm not sure how this is different though than the situation you described. I really am confused now. Why do we have to take this money from them; they haven't used any of it so we haven't even been hurt by it?
  • This is great! I have a Flex question also! Can anyone point me to information concerning cafeteria plans vs. premium only plan? Also, do you all allow continuation of the flex plan after termination? It wouldn't make sense since the employee no longer enjoys the pre-tax benefit, but at my past job we did, this job we don't.

    Just wondering.
  • Zanne,

    A premium only account means the employee's premium is deducted from their pay before taxes. A health reimbursement plan allows the employee to deduct, pre-tax, an amount of their choosing, (to a limit - ours is $3,000), to pay for uncovered medical expenses. It's a good benefit; in our case, if you chose the max,$3,000 of your income would not be taxed. For daycare, there is a $5,000 limit - there's no flexibility with that - the IRS has set that limit. The employer sets the limit for the health reimbursement plan. With the day care section, you are reimbursed no more than what you've had deducted. The health care plan allows reimbursement for the total amount of your election without having had it all deducted.

    Other cafeteria plans allow the employee to use this pre-tax money to pay for various benefits offered by their employer. We've never had this so I am not as familiar.
  • Employees who have used more than or equal to their withholdings for the year are considered done when they leave employment. However, an employee who has contributed more than he has used must be offered COBRA. When we offer COBRA, we change the amount to a monthly premium amount and bill it. This is to give the employee an opportunity to access the amounts already contributed.

    Example 1: Employee has contributed $200 to the cafeteria plan, but has submitted claims for $300. No COBRA is offered.

    Example 2: Employee has contributed $200 and has submitted no claims. This employee agreed to $1200 for the year, so deductions total $100 per month. I would offer COBRA and inform the employee that his/her premiums will be $100 (or $102 if you want to add the 2% administration fee). If the employee elects COBRA, he will have to pay his/her premiums following the same rules as for any health plan COBRA. The employee will not get a tax benefit for any post-employment premiums paid, and we may terminate his/her COBRA as soon as he no longer has a balance. So if the employee pays $100 and submits claims for $300 or more he/she is terminated from the plan. If the employee only submits $200, then he/she may continue the following month. COBRA is never continued into a new plan year.

    We have offered COBRA a few times, but have never had an employee sign up. Usually the balance is too small for them to worry about.
  • NaeNae55,

    I thought it was the law to offer the option for continued health insurance coverage after the employment relationship has ended. In Wisconsin it is the law to offer COBRA and a HIPPA Certificate. Must not be in your state.

  • Cindy Hanna

    I think there is some confusion here. Of course we must offer COBRA for health and HIPAA certificates as well; that is federal law. But that does not change the fact that COBRA must be offered for some flexible spending options too. I was just trying to respond to the question about COBRA for medical reimbursement plans. COBRA applies to medical reimbursement plans, as well as health plans, as they are both welfare benefit plans. Umm. I thin I am beginning to ramble here. What can I say? It is the end of the day. x:-)
  • Thank you, NaeNae55. Now that makes sense.
  • NaeNae,

    Your explanation clears my confusion. Thank you
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