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Friday, April 3, 2009
What happens to your FLSA if you lose your job?
With many people losing their jobs, one of the questions that comes up frequently is what happens to the health-care flexible spending account (FLSA) contributions. The good thing is that, unless your firm's plan is written in more restrictive way, in most cases you get to use the entire amount you elected in the previous year even though you got laid-off before you had made contributions in that amount. For eg, if you had elected to contribute $6,000 in 2009 health-care FLSA but had only contributed $1,500 through Mar 31, 2009 and got laid off, then you still can use the entire $6,000. The only caveat: you must have used the entire $6,000 by Mar 31, 2009. So if you had charged $2,000 till Mar 31, 2009, that's all you can charge to the FLSA even though it is $500 more than your contribution. However, you can't spend the remaining $4,000 (=$6,000 elected contribution amt - $2,000 you spent through Mar 31, 2009) over the Apr - Dec 2009 period since you lost your job on Mar 31, 2009.
There's good news and bad news about FSA contributions. On the bright side, you can use the full $2,400 for eligible medical expenses at any time -- even if you lose your job before the year is over. "An employer cannot ask for the money back in most cases, unless the plan is written in a certain way, which is highly unusual," says Jody Dietel, chief compliance officer for WageWorks, which administers FSAs for many large employers. Ask your employer about the rules before you spend the extra money.

But you usually have to spend the money before you lose your job, or else you lose the remaining cash in the account. If you think that your job may be in jeopardy, this could be a good time to visit the dentist, eye doctor and pharmacist and to buy an extra pair of eyeglasses. You can submit the paperwork even after you lose your job, as long as you incurred the expenses before your termination. "There's typically a claims run-out period that gives you some extra time to submit eligible claims for reimbursement," says Kelly Traw, of Mercer, a health-benefits consulting firm.
The Kiplinger.com article discusses a way to extend FLSA contribution even after losing your job - using the provisions under the COBRA law.
There may be a way, however, to buy yourself some extra time to use the cash in the account. Some employers give you until the end of the month to use the money, or you might be able to sign up to extend your FSA benefits under COBRA - the same federal law that lets employees keep group health insurance for up to 18 months after they leave their jobs. Most companies with 20 or more employees are required to offer COBRA coverage, which also applies to money in flexible spending accounts. You don't have to use COBRA for health insurance to have COBRA coverage for your flex plan; they're separate from one another.

To keep your FSA open, you would continue making the same monthly contribution plus a 2% charge. So if you signed up to contribute $200 every month while working, you'll contribute $204 per month to keep COBRA coverage for your flexible spending account.
For complete article, see:

Kiplinger.com: What Happens to Your FSA If You're Laid Off
posted by Little Rishi @ Friday, April 03, 2009  
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