Q.- We seem to be "stuck" with employees taking more from their Health Care Flexible Spending Account Plans than they contribute. Can we recoup the remaining amount to be paid to the Health Care FSA from a terminating employee's final paycheck?
A.- No. An employer may not withhold the remaining FSA contributions from an employee's final paycheck.
A Health Care FSA must be structured, under IRS rules, to exhibit the risk-shifting characteristics of insurance. That means that the full amount of the elected contribution must be available throughout the coverage period, and reimbursements may not be limited to the amount the employee contributed to the plan. When an employee terminates employment mid-year, the employee may submit reimbursement claims for expenses incurred while the individual was an eligible FSA participant. Any expenses incurred after participation in the FSA ends are not eligible, unless the individual elects to continue Health Care FSA participation under COBRA.
Sometimes the employer "wins" when an employee terminates participation mid year. If the employee has contributed to the Health Care FSA more than the employee has claimed, the employer keeps the excess money in the FSA. On the other hand, sometimes the employer "loses" and the employee takes out more money than the employee contributed. This plan reimbursement structure is required by the IRS, and and employer is not permitted to tamper with this required risk-shifting plan feature.