Cafeteria Plan Forfeitures

What are forfeitures?

An FSA experiences gain (sometimes referred to as forfeitures) with respect to a plan year equals the amount of the employer contributions, including salary reduction contributions, and after-tax employee contributions to the FSA minus the FSA's total claims reimbursements for the year less any rollover.¹

What happens to forfeitures?

Forfeitures may be:

1. Retained by the employer maintaining the cafeteria plan
2. If not retained by the employer may be used only in one or more of the following ways:
   • To reduce required salary reduction amounts for the immediately following plan year, on a reasonable and uniform basis
   • Returned to the employees on a reasonable and uniform basis
   • To defray expenses to administer the cafeteria ² 

Can forfeitures be paid to the employee who has forfeited them?

No: “However, in no case may the experience gains be allocated among employees based (directly or indirectly) on their individual claims experience.”³

Footnotes

1 Prop. Treas. Reg. §1.125-5(n)(2).

2 Prop. Treas. Reg. §1.125-5(o)(1).

3 Prop. Treas. Reg. §1.125-5(o)(2).