What happens when an employee terminates?
Flexible spending account plans have regulations that say the annual election must be made available at the participant’s effective date. Employees who terminate their employment before the end of the plan year: • May forfeit their account balances, by failing to request reimbursement in the grace period established by the employer. If the participant has a positive health care FSA balance, they may elect COBRA continuation coverage, paying 102 percent of the premium and extending the coverage period until COBRA eligibility expires. It is possible for an employee to terminate and be reimbursed more than what was contributed to the plan. This is the risk that the employer takes in having a flexible spending account plan.
