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I was recently terminated from a job because they were eliminating my position. I was not terminated for cause. I had an FSA that I was contributing to and it has a balance of approximately 450.00. My separation papers indicate that if I do not elect COBRA, they keep my Flexible Spending Account money. The only exception is for medical expenses up to my termination date. Is it legal for them to terminate me, walk me out the door, and keep the FSA moneys like that? I have yet to elect COBRA and probably will not as I have landed another job. I checked and they have closed my FSA.

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There's an answer to this question already here, but reading it again I think it may not be as clear as you might expect. I'll summarize the main point:

FSA is an employer-sponsored plan. That is, you only get benefits as long as you're employed with the sponsor. Once you left your work, for whatever reason, you're no longer covered (unless you elect COBRA). Whatever you have left there, you'll have a grace period to claim, but you can only claim expenses incurred before you left the employer. If you have money left there, you lose it.

Similarly, if you "pre-spent" your FSA (i.e.: finished your whole budget before actually paying in the amount), then you're not required to pay in the missing amounts. So for employer it balances out: the amounts pre-spent by people who spent their budget before filling it and then left, are covered by the people who left while under-spending the budget, or people who hadn't used their budgets up throughout the year.

So bottom line: your $450 are now lost to you. This is how the FSA works.

  • And the pre-spent is why my previous employer eliminated FSAs. They got hit with multiple low level people setting the FSA high, spending it in January and then leaving. – Loren Pechtel Jun 8 '14 at 19:56
  • @LorenPechtel - and it's why I like HSAs far far more: same tax benefits, but they belong to you, not your employer, so they go with you when you leave – warren Jun 12 '14 at 19:44
  • @warren I fully agree except not everyone qualifies for an HSA. (Which is something I think Washington should change.) – Loren Pechtel Jun 12 '14 at 22:00

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