Laid off. Had FSA overages that I wasn't aware of. Can they collect?

Question

I was abruptly laid off, and I wasn't aware of the FSA overages until after my departure. I realize I'll sound like a weasel, but can they collect?

They paid out more than the annual limit and they have sent an email asking for the funds back.

Answer 1

It depends on what you mean by “overages.”

FSA plans have a feature called “uniform coverage.” When you sign up for the plan with your employer, you are signing up for coverage up to a certain dollar amount and you agree to pay that same dollar amount out of your paychecks over the course of the year. “Uniform coverage” means that you are covered for the entire amount as of the first day of the year, even before you make any payments out of your paychecks. If you leave the company for any reason, the FSA plan ends immediately. It doesn’t matter whether you have paid more or less than you have used, the plan is over at that point and no money is owed in either direction.

So, if by “overage,” you mean that for 2018 you have already been reimbursed for more medical expenses than you have paid in your paychecks and now that you are laid off you won’t be making anymore payments, then the answer is no, you do not owe this money. If this is your situation, I’m surprised that your employer would ask you for reimbursement; they really should know better.

If, however, “overage” means something else, then all bets are off. Perhaps you mean that the employer made a mistake and made a payment that they were not supposed to, or you made a mistake and submitted a claim you should not have, or you hit your annual maximum but they mistakenly continued to pay. In all of these cases, you could see how it would be understood that you should pay the employer back.

---

According to your comment, the employer has mistakenly paid out more than the total FSA plan amount for the year. In general, when you receive funds that you were not supposed to receive, you have an obligation to pay it back.

Answer 2

Possibility 1: Reimbursement exceeds contributions

• You elect to contribute $1,200 to the FSA ($100 a month).
• In February, you submit $2,000 worth of expenses. You are reimbursed $1,200.
• In March, you are laid off.

In this case, you've paid $300, but received $1,200. Your employer cannot compel you to pay the difference. Quoting Div 125, a provider:

The risk to the employer comes when a plan participant terminates employment before repaying into the plan all reimbursement. So if the above employee terminates employment 6 months prior to the end of the plan year, this employee has been paid out a total of $1200 already, but has only contributed $600 into the plan so far. In this situation, there is no remedy for the employer to recover the loss, and that is the inherent employer risk in the medical FSA plans. The employer cannot ask for this money back, adjust W-2 wages after the fact, nor can it payroll deduct any overage from the final paycheck.

Possibility 2: Reimbursement exceeds total election

• You elect to contribute $1,200 to the FSA ($100 a month).
• In February, you submit $2,000 worth of expenses. You are reimbursed $2,000.
• In March, you are laid off.

In this case, there has been some form of accounting error. You are still entitled to keep the $1,200, as above, but the excess $800 should never have been paid to you in the first place, since it is above the total amount you elected at the beginning of the year, and should be returned.