FSA (Flexible Spending Account) is a pre-funded account by the employer. This means that on the first day of the plan year, the full amount elected is available to use. Throughout the year, the employee will have funds withheld from their paycheck to contribute back to this pre-funded account.
The employer and employee understand that it is a use it or lose it account - meaning that any funds unused by the time the employee leaves the company is not available for new purchases after the last day of employment.
Both parties also understand that if the employee uses the full annual election before the end of the year and leaves the company, the employee is not required to contribute the remainder of the annual election back to the employer. Again, after the last day of employment, contributions are discontinued. After the last day of employment, there may be one more payroll contribution from the employee's paycheck as they end their time with the employer but this final contribution amount will not be more than the normal contribution amount. Funds can be used at Direct FSA online or for eligible expenses, found here.
What Happens to the Funds
The funds that you don't use get forfeited to the employer. The employer pre-loaded the account at the beginning of the plan year before any contributions were made. After termination you are no longer responsible for paying the rest of your payroll contributions.
If you were just recently terminated and you still have money left in your FSA account, there are a few ways in which you may be able to claim at least some of your funds. These options are available for participants who claim less than their annual election and less than they contributed at the time of their termination.
If you paid for out of pocket for services during your time of employment (from the start of the current plan year through the termination date), you can continue to submit claims for only those services. You may submit a claim for a medical expense incurred before their date of termination up to the amount of their annual election less what has already been reimbursed.
The claim must be submitted before the end of the required time period to submit a claim. Some employers allow a claim to be submitted through the run-out period after the end of the plan year. Some employers only allow a set amount of days after the date of termination. To find the specific plan details you can find them under the companies information in Insightly.
Continue Your FSA Through COBRA
You may be eligible to continue using the FSA for services beyond the termination date if you are eligible to continue the FSA through COBRA. For more information, please visit The Health FSA and COBRA article.
Under COBRA (COBRA only applies to employers with 20 or more employees), you may elect to continue participating in the Health FSA through the end of the year. If you elect COBRA:
- You may incur expenses through the end of the year.
- You may submit claims for those expenses through the end of the run-out period after the end of the year.
- You must elect COBRA and make COBRA Health FSA contributions each month equal to the amounts they were contributing through their payroll withholding.
If you do not elect COBRA, any expenses incurred after the date of termination will not be reimbursed.
What happens if a participant has claimed their entire annual election?
No other contributions, claims, or payments are made.