I received the following question regarding flexible spending accounts (FSAs) from a reader the other day:
“My employer is asking me to sign a form to reimburse them for FSA funds distributed but not yet set aside (I’m leaving before the plan year ends). I have refused. Is there a regulation that states I do not have to repay them?”
I’ve written about this general topic several times in the past. In fact, twice in my life I’ve left a job having spent out my full FSA allotment by mid-year, and I walked away with the difference in my pocket. At first I felt like I was doing something wrong, but I later learned more about how FSAs works…
In case you’re not aware, FSAs are a use-it-or-lose-it proposition. In other words, that you lose your unspent funds at the end of the year. Well, guess who gets to keep that money? Your employer. So before you lose too much sleep over coming out on the ‘winning’ side of equation, keep in mind that your employer is likely offsetting those losses by pocketing a ton of money from underutilized FSAs. It’s far from a perfect system, but it is what it is.
Now, setting aside the issue of whether it’s right or wrong to keep the money…
Can an employer can legally compel an employee to give this money back?
I’m not sure, but I thought that one of you might happen to know.
Beyond the issues of legality and right vs. wrong, however, you also need to consider the value of that money relative to the value of your relationship with your former employer.
If your employer asks for this money back, is it worth burning bridges to keep those funds?
If either of my former employers had asked for the money back, I’m sure I would’ve given it to them. But they were dealing with tens of thousands of employees, and they just seemed to consider it the cost of doing business. In fact, had I decided to pay it back on my own, I wouldn’t have had a clue where to start (though I must admit I never asked).
I got laid off in January and had already used my Flex money up for that fiscal year ending in June. I asked the HR lady and she said not to worry about it, the company paid it. Where it came from the horse’s mouth i don’t feel guilty over it. I guess they make out from people who don’t use all their flex money.
@ 13,
Even though it has been a while, this may be helpful in the future to other people:
No, you cannot use the fund to pay expenses incurred before Nov 08. The money can only be used to pay expenses incurred during the active period (i.e. Nov 08 to Dec 08, or more in case there is an extension period).
My husband joined his new employer in Nov’08 and he enrolled for FSA. Can we claim any FSA eligible expenses incurred before Nov’08 ?
PS: Realised that last comment was 1 year old.
We had been enrolled in an ongoing FSA and we received a letter of acceptance for the plan year 2008 for our FSA acct. The funds have been deposited and are available. Everything I have read states that once the account has been created it belongs to the employee even if they do not contribute any funds through payroll deduction.
Heres the twist…My husband was illegally terminated in retaliation for pursuing his legal rights on 31 Dec 07 (formal discharge date-he actually was told to leave and did not get paid right before Christmas).
Some employees had engaged in illegal actions and caused permanent damages in a family member. When my husband finally pursued legal action against those involved, he was immediately terminated by two of the “problem employees” listed in litigation.
Retaliation termination is totally illegal by both state and federal law and it can easily be proven in our case. He was fired despite remaining a faithful employee to the institution and was given excellent yearly reviews (with pay increases!) the last one was a week before he was given his walking papers!
The whole thing stinks….
After 10 years of dedicated service and with the wrongful termination, the permanent physical damages caused by some of the employees and the hell they put us through, it wouldn’t bother us a bit to use the money
Any thoughts or info?
The much better option to an FSA is a Health Savings Account. Changes in these plans last year make them very desirable for an employee. It is your account, no “use it or lose it, you keep it permanently even if you change jobs. It has to be combined with a high deductible health insurance plan. The money in the account, which many employers also contribute to, can be used for any medical reason. The saving account can be invested, much like a 401K plan, and after age 65 the funds can be used for any purpose, medical or not, without penalty.
Hi,
Section 125 menu choices (read: FSA plans) cannot be modified without a qualifying event. As such, your employer cannot ask you to sign a new agreement that would bind you to pay back used-yet-un-deducted funds.
Even if they could…
This would not be a legal contract. These are use it or lose it plans…and the burden of risk is two-fold. If you terminate mid year, and used all your election dollars, the burden of payment is on the employer. If you reach the end of the plan year, and haven’t utilized all your funds, they are forfeited to the company. The is a risk that both you and the employer share. The way an organization can reduce this burden: there is no required FSA amount they have to provide to you within the plan. If the company desired, they could elect to provide a FSA plan with a maximum annual contribution limit of $100. This would significantly reduce the risk to both you and them. The greater the plan maximum, the greater the risk to both parties.
Hope that helps,
~Payroll Guy
We didn’t have to pay anything back when my wife left her job at couple of years ago. We probably would have paid it back if they asked, though.
Politely ask why they want you to sign such an agreement. Say you are happy to abide by whatever the plan says you have to do, but that you believe signing a “new” agreement at this time is superfluous.
Then, politely ask to see the provision in the plan, which you signed and agreed to, that requires you to pay back the money if you should be terminated or if you leave the company. If they can not produce such a provision, than you are perfectly within your right to refuse to pay it back.
I agree with the idea of not burning your bridges, so if it is small, might be best to just pay it. But if you are like me, i wouldn’t do it on principle. People should not be able to change the rules just because it suits them.
One last note:
The wikipedia article agrees that the employer cannot collect, but it does not really give any better justification than above.
http://en.wikipedia.org/wiki/Flexible_spending_account
Also, a lengthy discussion of the subject.
http://www.bargaineering.com/articles/employer-trying-to-get-fsa-overspend.html
I decided to look into this a little for a definitive answer on the subject, but I was not able to find one. Here are a few interesting notes from http://www.irs.gov/publications/p969/ar02.html
You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.
This sentence is just ambiguous enough that they could support that you should have to pay them back (not YET placed).
Flexible spending accounts are “use-it-or-lose-it†plans. This means that amounts in the account at the end of the plan year cannot be carried over to the next year. However, the plan can provide for a grace period of up to 2½ months after the end of the plan year. If there is a grace period, any qualified medical expenses incurred in that period can be paid from any amounts left in the account at the end of the previous year. Your employer is not permitted to refund any part of the balance to you.
This implies that it is illegal for the company mentioned above to refund employees who did not use it all.
A few notes from my FSA site for my job:
Participation in the FSA program ends when you leave the company. If you leave the company mid-year or later, you may be reimbursed for eligible expenses up to 90 days after the end of the plan year, provided the expense was incurred before the date of your termination.
It says nothing about what happens if you leave before mid-year though.
I think this is dependent on your policy. My policy specifies that monies in the FSA when I leave are returned to me (and taxed at that time) and monies overspent will be deducted from my final pay or I will have to repay.
I had an employer ask me to pay back FSA money previously (read $1500 for a well planned LASIK). I explained the use-it-or-lose-it rule and politely declined. Worked out fine.
If you do decide to repay it just to be nice, make sure to have them take it out of your paycheck pretax. If you just write them a check, you’ll be giving up some more money to taxes!
(Remember though, the employer would not return your unused money, “just to be nice.”)
If it is a small amount of money (less than $100 or so), I might pay it back just so that I would not be leaving on a bad note in case I needed recommendations or a job there again in the future. If it was a substantial amount of money though, I would politely refuse to sign the form. If they pushed the subject, I would tell them that I would be glad to pay it back if they could show me a law or contract that I signed which forced me to do so. If they could not and still pushed the issue, I would either just blow it off or consider contacting a lawyer for more information on my options (especially if it were thousands of dollars).
We would need more info from this person, such as the agreement he signed when he started the FSA. If it says somewhere in there about termination and over-spent funds, then they can probably get it back, either with that form or through collections.
I’m dealing with a similar situation with my former employer over education assistance. Unfortunately, i have to pay it back. Hmm, maybe I’ll write about that now…
I looked into this before leaving an employer and other than the situation the questioner asked (where you sign to pay back any overspending) I have not found a legal means for an employer to come after you for the money. Maybe it is in the fine print of your agreement. Fortunately for me it was not there at the company I used to work for.