Changing or Losing Job? Don’t forget to use your FSA dollars!
Just a quick reminder that if you’re fortunate to have found a new job, or unfortunate enough to have lost your current job, and you have been contributing to a Flexible Spending Account, you can spend ALL the dollars you elected, even if they haven’t deducted all of it from your paycheck yet.
For example, if you elected to contribute $1,000 to your FSA (used for medical expenses) in 2009, and you get 26 paychecks per year, that’s $38.46 per pay that you contribute towards that $1,000. However, per Section 125 (see bottom of page 79 for Uniform Coverage Rules), FSA providers MUST provide the entire $1000 up front. Right now, you would have contributed about $150 towards that $1000, but you can spend the full $1000 anytime before the end of the year, even if you haven’t contributed all the money.
If you were to spend $500, perhaps on a medical bill, new glasses, or a combination of medical expenses, but have only put in $150 to-date, and then left your job for any reason, you don’t need to pay the $350 balance back.
The Ethics of “Gaming” the FSA
Basically, the FSA provider expects you to stick around long for the entire year to pay back all $1000. If you don’t spend it all by year-end, they get to keep the difference between what you spent and what you put in (the “use it or lose it” rule in Section 125). So if you contributed all $1000, but only used $800, it’s their gain and your loss.
But on the flip-side, if you happen to have some emergency medical issues at the beginning of the year and got reimbursed from your FSA, but then were fired from your job, it’s reasonable that you should not be expected to pay back the money. Your employer may ask to be reimbursed, but you are not legally obligated to pay it back. You didn’t know you would be laid-off or fired, and it wasn’t your decision to leave, so you shouldn’t be punished for it.
But then there are people who manipulate the system for their gain. I’ll admit that I was one of them.
Back in 2005, I had set aside $300 for my FSA at my new company. I started in May, but left the company (on good terms) in September of that same year. I had only put in about $100 by that point, but a week before my last day, I sat on my glasses and broke them. I needed them to drive, so knowing I still had $200 left on my FSA card, I called up our benefits department to find out what to do.
Surprisingly, HR said I can use the money and not have to repay it. That was the first time I heard of this deal and had to make sure I asked the question correctly. They confirmed their answer. I was just amazed! I wondered if anyone else knew this secret, but I didn’t have this site to tell you all yet.
After that, I did hear about people putting $2500 into their FSA in November for the next year, and then getting Lasik on Jan 2nd…and then resigning on Jan 3rd. Now THAT’S gaming the system.
Is there a gray area?
When researching for this article, I found this reader question article at Bargaineering. The comments definitely got rather lively, whether defending gaming the FSA or calling it unethical. Some commenters also said it was morally gray area.
I’d say there are four ways to look at the situation:
- You paid up $1000 of your FSA, and you used $1000 too. All is good in the universe.
- You paid up $1000 of your FSA, but you only used $800. Company keeps $200. It’s the law, but is it right for the company to take your money? Well, the law wouldn’t lie, right?
- You paid up $800 of your FSA, but used $1000 before being terminated from the company. You don’t pay the money back. If the law doesn’t say you need to pay it back, is it wrong not to even offer your company to reimburse them?
- You paid up $800 of your FSA, but used $1000 before leaving the company on your own. Again, the law doesn’t say you need to repay, so is it right for you to keep the company’s money?
The thing is, both you and the company are entering into the agreement to fund, use and reimburse your FSA. You are educated before enrolling in the FSA that if you don’t use it, you’ll lose it at year-end. And your company knows the opposite; if you use more than you paid up, and leave for whatever reason, then the company loses it.
Personally, I don’t think it’s ethical to use someone else’s money without repaying it, and that goes for both the company keeping my money or me using the company’s, regardless of the law. That’s why in November you have to try hard to make the best educated guess at what you’ll need next year, and then use it wisely and properly. If you find yourself in scenario 3 or 4 from above, the right answer would be to at least offer to reimburse the company.
But you know what? We take what we can get, right? If I had the opportunity again to use more than I put in before leaving the company, I would find it REALLY hard not to.
What do you think? Have you used more than you put in before? Has your company ever tried to get it back?
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I sort of disagree.
I agree that not ethical to use someone else’s money without repaying it, but that applies to the company as much as it does to you. In this case I think that if both parties act the same way then it is at least fair. The company isn’t going to reimburse you the money, in return they might fall foul of the *be done by as you did* rule. Them’s the breaks.
@Plonkee, we both said the same thing, so there’s no disagreement. “Personally, I don’t think it’s ethical to use someone else’s money without repaying it, and that goes for both the company keeping my money or me using the company’s, regardless of the law.” I guess your disagreement might be with me calling it unethical, but my thought is just because you’re both cheating each other doesn’t mean it’s right. Plus, you’re not both cheating each other at the same time; either you get the extra cash or your company does. It’s just that you both agree to the chance of losing money when you sign up for the FSA.
Perhaps “unethical” is too strong of a word, but I’ll need someone’s help to think of a better one.
Seems like a pretty crazy rule. It basically means companies are taking a bigger risk when they hire someone, because they have to give them a year’s worth of spending up front. Whoever came up with this was probably pretty well-meaning, but the main effect is that it costs jobs — not that people get fired, but, less visibly, that they don’t get hired.
I think the key here is intent. When you calculated your contribution to the FSA, did you do so knowing that you would be leaving the company and have the intent to spend more from the FSA than you put in? That seems unethical, because it goes against the intent of the agreement (even if it’s not technically fraud). But if something comes up during the year, why shouldn’t you be able to take advantage of a benefit that was agreed upon? After all, that’s a binding contract.
Wow. I just stumbled upon your website reading an piece you wrote about negotiating salary at a new job. I liked what I read and decided to take a look around a little more and am very glad I found this article. I was curious as to how that works when you basically submit claims for more than the amount that has been contributed thus far. Interesting stuff. I agree with what you are saying 100%. Its kind of a twisted system. I guess its kind of a nice thing if they let you go assuming you made all your claims. I was planning on just stocking up on flats of toothpaste and contact solution at the end of the year just to make sure they didnt get to keep my extra! Now I can spread out my toothpaste purchases over the year instead.
lol – Toothpaste isn’t covered unless it’s a special prescription toothpaste (with Rx) and even then you can only write off the difference between what you paid and normal toothpaste.
Take a look at what your FSA provider covers. I was quite surprised at all the stuff they cover.
Here’s what Payflex covers:
https://www.payflex.com/individuals/common-eligible-expenses/health-care
I am at a job where I was offered a new position for a 20K/year pay cut. It turned out to be more than that as I was also asked to work less hours in a week. All in all, my checks were less than half of what they were before I started the new position. I wasnt “forced” to take the new position but was told that the administrator would be “very upset” if I didn’t except it. After the announcement of the “new pay rate” for me, I didn’t want to accept the new position but felt pressured to. After all, what would my work environment have been like if I hadn’t accepted the offer? Prior to, I had used up my entire allotment of FSA. I had surgery and accumulated some hefty medical expenses. I didn’t use it with the intensions of leaving the job and “cheating the system.” I used it because I needed help with medical expenses. After I took the new position and checks were small, my husband informed me that we were having to dip into our nice savings every month just to make our monthly bills. When I became aware of this, I went to my employer and asked them for a raise and increase in hours so that I could stay in the position. I was told that I would “have something worked out in 3 days” but that never happened. So, to show good faith to my husband, I sent out a couple resumes. I felt obligated to my family to change my income. The result was a job offer that far exceeded anything I ever expected and I had to accept it. When I submitted my letter of resignation, I was given the “it’s morally right for you to return the extra money used” speech. I asked to make a deal in exchange for the unused sick leave that I had accumulated (money they will gain on my behalf). I was told “that was a benefit that was extended to you should you need it and you didn’t so it will be lost.” And I have to say, I feel the same about the medical FSA. I needed that. I feel I was cheated by my company. Does anyone have any thoughts on my situation? My husband, very ethical, feels I shouldn’t pay it pack. He considered all aspects in my situation before he made his decision. I think he might be right. There are no “cut and dry option 3 or 4.” I think I fall inbetween.
I’d appreciate any comments. Thanks.
So what if you were fired and haven’t filed any claims yet? Last year when I did the FSA, I saved all my receipts and filed just one claim near the end of the period. Now I have no job and I’m not sure if I am supposed to try and spend the money before the end of the month (my HR person seems to think that all benefits apply till the end of the month) or what. And do I still have till the end of the period (I think it’s some time in July) to submit my claim? I have spent some stuff but not filed anything and the stuff I have spent has all been small potatoes (Rx meds). I put in 1k but I have no idea how much of it I’ve paid in thus far. Sounds to me like I lose.
Now what if you took your election for the new year in November accounting for dental work, medications, and eyeglasses which you knew you were going to need just to find out your company was working behind closed doors to outsource your job. Two weeks after the new year you are notified you will not have a job in 2 months and they knew this before the election. Now in 2 months we will not have any health benefits and to top this off were suppose to be able to pay for all the extras. well I am an ethical person but apparently the company is not. I think if they are unethical enough to destroy a person’s livelihood than then should be willing to compensate them, since there is also 2 weeks unused sick pay which they said will be prorated and there was no guarantee on that either. I am sure they would have no problem in keeping my money if the account was not used up. anyway it’s in the Uniform code and is expected.
There is nothing wrong with using the money, thousands of thousands of thousands of dollars are NOT used each year because people did not use it in time so it goes both ways. The law states use it or lose it and the law states you can use even if you didn’t pay into all your funds. The govt. does not feel guilty when the employee does not spend all its money and that is just the way the rules of the game are played.
It’s downright adorable here the people who feel bad keeping money that they are legally entitled to, when it’s a known fact that you don’t get your money back when you fail to use it all up. This is BUSINESS, people. First of all, the shortfall when this happens is more than paid for by the funds from all those people who underuse their FSA and lose it at the end of the year. So the company isn’t hurting, they’re still coming out ahead. Secondly, if you think your company would do anything above and beyond their legal obligations for you, just to do the right thing, you’re a pretty big sucker.
Bottom line, read the rules and do what benefits you the most. When I’m changing jobs, I’ll definitely fund my FSA to the max and use as much as possible and leave early in the year in order to maximize my benefit from the FSA.
If anybody has a problem, they should spend their time lobbying to reform the idiotic FSA system of guessing and use-or-lose-it, and just make it a simple end-of-year deduction on the 1040 instead.