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FLEXIBLE SPENDING ACCOUNTS (FSA)

Flexible Spending Accounts are fairly common.  Typically accounts are funded with voluntary Section 125 pre-tax payroll deductions and used within the specified plan year for qualified medical expenses.  This is an example of a defined-contribution arrangement, but FSAs may also be used as a defined-benefit plan.


Defined-Benefit Plan
A company may also fund employee FSA accounts with company funds as a benefit.  The unused portions are kept within the company and are forfeited just like the employee contributions are (Use it lose it).  An example of using the FSA plan as a define-benefit plan is using it to reimburse employees for premiums.  If a company does not have a group health benefit, the FSA may be set with a specific monthly benefit to reimburse employees for individual health insurance premiums.  An FSA can be customized to reimburse any qualified medical expense the company chooses.


"Use It or Lose It" and...

Although companies are familiar with “Use it or lose it,” most do not know an FSA participant is allowed to spend his/her full annual election on the first day the funds are available.  For instance, an employee may elect the maximum annual election and spend the full amount before any money is deducted from his/her paycheck.  If the employee terminates employment before his/her paycheck, the company has no recourse to recover the spend funds.  Beware of being too generous when setting the maximum annual FSA election. 

For more information, please contact Bridgeport Benefit Advisors.
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The material on this page is intended as general descriptions of the concepts presented.  It is for educational purposes only and it not intended to provide specific financial or tax advice.  These descriptions cannot take into account your specific conditions and situation including the data required for underwriting purposes, financial circumstances, risk tolerance, and other factors.