What happens to any unused contribution? Why can the participants get a refund of their unused contributions at the end of the Plan Year?
A. A flex benefit plan may not allow participants to defer compensation earned in one year to the next year. As such, participants may not carryover unused elective contributions or employer provided benefits from one plan year to another. This rule is referred to as the “use it or lose it” rule. This issue is outlined in greater detail in Prop Treas Reg ยงยง 1.125-1, Q&A 7, 1.125-2, Q&A 5(a).
