What Happens to Health and Welfare Benefits When an Employee Is Rehired?
A rehire should trigger more than simply changing an employee's status back to "active."
FSA Forfeitures
How can we use amounts participants did not spend from their FSAs?
Q: How can we use amounts participants did not spend from their FSAs?
A: How FSA forfeitures may be used depends in part on whether the FSA is subject to ERISA. For an ERISA-governed FSA, forfeited amounts are generally considered plan assets and must be used for the benefit of plan participants rather than retained by the employer for its own benefit.
IRS guidance provides several ways FSA forfeitures may be used. Depending on the plan and applicable ERISA requirements, forfeitures may be used to:
- Offset reasonable expenses associated with administering the FSA.
- Reduce participant salary reduction amounts for the following plan year.
- Increase participant FSA coverage amounts.
- Be distributed to employees on a reasonable and uniform basis.
If forfeitures are distributed to employees, the amounts are generally treated as taxable wages and are subject to applicable payroll taxes and federal income tax withholding. When forfeitures are used to reduce contributions, increase coverage, or make distributions, the allocation must be made on a reasonable and uniform basis and cannot be based on how much an individual participant forfeited.
For a non-ERISA FSA, IRS guidance also permits forfeitures to be retained by the employer. That option is generally not available for an ERISA-governed FSA because of ERISA’s restrictions on the use of plan assets.
Benefit Allocation Systems (BAS) provides online solutions for: Employee Benefits Enrollment; COBRA; Flexible Spending Accounts (FSAs); Health Reimbursement Accounts (HRAs); Leave of Absence Premium Billing (LOA); Affordable Care Act Record Keeping, Compliance & IRS Reporting (ACA); Group Insurance Premium Billing; Property & Casualty Premium Billing; and Payroll Integration.
MyEnroll360 integrates with major insurance carriers for enrollment eligibility management (e.g., Blue Cross, Blue Shield, Aetna, United Health Care, Kaiser, CIGNA and others), and with leading payroll platforms for enrollment deduction management (e.g., Workday, ADP, Paylocity, PayCor, UKG, and others).
This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
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