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Benefits  >>   FSA while on LOA Search Discussion Posts
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FSA while on LOA  
Posted: 12/02/2009 09:19am   64 Views

Normally, we will retro-deduct the FSA amt after the employee returns from LOA. I have this case for which the employee has been on LOA and wil not return until next year. Since we can't deduct the 2009 FSA in 2010, I would like to see how others handle this? Thanks.


FSA while on LOA  
Posted: 12/02/2009 10:04am  

We did some legal research on this one, and there are different ways to interpret the regulations and address the issue. Some organizations do cross calendar year deductions. Others require employees to pay as they go with after-tax dollars to continue participation, or recalculated the annual goal amoutn upon the LOA start date. We didn't see a clear best practice.

We've elected to have the plan take a loss for this type of scenario. It's simple, benefits an employee who may be in a difficult situation, and forfeitures typically make up the difference. It appears this is compliant with Section 125 as well.

Hope that helps!


FSA while on LOA  
Posted: 12/03/2009 07:26am  

My organization has perhaps the largest number of FSA participants in the country.  Confirming Julia's observation, we set up our LOA practice based on how we wanted to handle it, not based on any survey data which may or may not have existed.

(At this point, please excuse the change in terminology to Leave Without Pay or LWOP in our vernacular.  Employees on Sick or Annual Leave continue participating in FSAs just like active employees unless there is a "qualified life status change.")

We require employees on LWOP to continue participating in the FSA program for up to 8 consecutive full biweekly pay periods (16 weeks), or the end of the FSA plan year, whichever comes first.  During that period employees are required to continue their contributions and they still have access to their FSA funds.  If the contributions are not paid by the employee during the LWOP period, it is recovered when they return to full-time status. 

Participation in the FSA ends after 8 biweekly pay periods of LWOP.  No more employee contributions; and claims after that date are ineligible for reimbursement.   

There are more arms and legs to this policy, but that's the gist of it.  If you want to learn more about our policy send me a message by clicking on the envelope under my picture and I'll send you our administrator's email address.  


FSA while on LOA  
Posted: 12/03/2009 07:47am  

Sorry!  I just re-read everything and realized that I didn't fully answer the original question.

If an employee returns to full pay status after the LWOP, but still within the plan year, his/her biweekly contributions increase to recover the amount of contributions owed. The increase is figured by dividing the balance of the annual pledged amount by the number of pay periods left in the plan year. (The increase will not exceed 10% of the employee's gross income per pay period.)  These contributions would be 

on a pretax basis.

However, if the employee owes FSA employee contributions at the end of the plan year, this amount becomes a debt and is collected on an after-tax basis under debt collection rules.


FSA while on LOA  
Posted: 12/03/2009 08:35am  

You may continue your participation in the FSA plan while you are on your leave. If you elect this option, you will be responsible for making up any missed salary reductions which would have occurred had you not been on leave. You have the option to discontinue your contributions and establish a make up plan to pay for any missed salary reductions. Make-up plans are flexible, but they must be established in advance and they must detail how all missed salary reductions will be paid. Additionally, all salary reductions must be paid in the SAME Plan Year as your election (even if your leave spans two different Plan Years). You are responsible for making sure that your missed salary reductions are made up in the same Plan Year. If they are not made up in the same Plan Year, you will need to repay them on an aftertax basis and you may lose a portion of the tax benefit of participating in the FSA Plan.




Retro-deductions -returning from LOA  
Posted: 12/09/2009 12:41am  

Thank you everyone for the useful info. I forgot to ask how do I handle the health & welfare benefits? Can I retro-deduct next year if the employee has not returned this year from LOA?


Retro-deductions -returning from LOA  
Posted: 12/09/2009 05:30am  

If you return to work during the same calendar year in which such unpaid leave of absence began, contact the Benefits Office to make sure that your contributions resume properly. Generally, health care expenses incurred during the leave cannot be reimbursed from your Health Care FSA. If however, you return to active work during the same calendar year, you may amend your Health Care FSA to make up the missed contributions in order to claim expenses incurred during your leave up to the amount of your original election for the year. Such change must be done within 31 days of your return to work and the increase will go into effect as of the first day of the month following receipt of the Change in Status form.


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