MINNEAPOLIS (WCCO) — Approximately 33 million Americans put money away every paycheck before the taxes are taken out to be used for glasses, braces or doctor’s visits. Flexible spending accounts (FSA) are a good way to save money on taxes, and save up for medical expenses.

But at the end of the year, if an employee doesn’t use all the money, they lose it. So, who gets the leftover money?

Sandy Alubowicz is the vice-president of Spending Account Services at Benesyst. The Minneapolis company processes more than a million Flex Spending claims and debit swipes every year.

“At this point in time, the company, the employer gets the leftover money,” said Alubowicz.

Even though the money is our money, when we allowed it to be deducted pre-tax, it technically became the property of our employer. In 1978 when Congress created Flexible Spending Accounts, they set it up within the Tax Code. The idea is that if you get to take income before it’s taxed — you have to use it in that year.

But your company can’t use that money to pay for a trip for the executives to the Bahamas.

“They can spend it on any administrative costs that they might have incurred during the plan year, or they can share it among their employees,” said Alubowicz.

“Funds must be divided evenly among all Section 125 Plan participants for that Plan Year,” said Katie Lee Zeitler, Client Services Administrator with Freedom Services, Inc. in Burnsville.

“By Section 125 Plan participants, I mean all employees who had anything deducted pretax from their wages during that Plan Year, including terminated employees and those who only had insurance premiums deducted,” said Zeitler.

We are talking about real money. The average American has $1,486 in their account, according to Jody Dietel, Chief Compliance Officer with Wage Works.

If all 33 million people left just $30 in their accounts, we’d be talking about nearly $1 billion in leftover money.

Most companies use that leftover money to pay the fees to benefit administration companies, like Wage Works and Benesyst.

It’s not just the employee at risk if he or she doesn’t use all the money by the end of the year; the company assumes risk as well.

Employers deposit the full amount you elect into your FSA at the start of the year. So if you withhold $2,000, get eye surgery in February and quit the company in March, the company is out the money that wasn’t pulled out of your paycheck for the remainder of the year.

Minnesota Congressman Erik Paulsen introduced a bill to let employees carryover up to $500 each year, called the Family and Retirement Health Investment Act of 2011. That would cut down on the end-of-the year rush to buy glasses or see the dentist.

The benefit companies tell us, they don’t like people to have leftover money, because those people are likely to just give up on FSAs.

“We get paid per participant per month. We hope, we would like to increase enrollments,” said Alubowicz.

Comments (11)
  1. Free in America says:

    This is nuts, the company gets the leftover money? And Eric Paulson wants to limit it to $500.00, why? I always was told that the leftover was yours and it just carried over. Why would anyone put any money into it in the first place?

    1. @ Free says:

      Limit what to $500?? Paulson is fighting to allow it to roll over, which is good for everyone. I think the employer should get it, they are the ones that lose when someone spends all their FSA and quits early. It is good balance if they are allowed to recover some if people don’t spend it all.

  2. GN says:

    Don’t confuse FSA with HSA. HSA, you can let it build. FSA requires a lot of prior planning. Very few use FSA if HSA is available. FSA should be eliminated and HSA offered by all that currently have FSA.

    1. @ GN says:

      You can only use an HSA if you have a high deductible plan, many do not. I’ll gladly keep my FSA thank you.

  3. Kevin says:

    Its a total scam! Always has been. More corporate greed! Where is the Occupy protesters! Oh…thats right they are busy at a Bachman speech….

  4. David Moe says:

    It is the way the law is written, not a company choice. Companies suffer the loss when an employee is reimbursed before the funds have been withheld and then leaves employment. Companies also pay to have the monies administered. I agree the law should change, no pre-reimbursements and the money can stay in the employee account forever, maybe allow it to convert to an IRA at 55 if the employee prefers or use it for supplemental insurance.

  5. Terry Dibley says:

    If you make $50,000 per year and have FSA iin the amount of $1,000, you are paying income tax on $49,000. If all medical expenses were simply tax deductible and you had exactly $1,000 in medical expenses, you would be paying taxes on $49,000. So why are we bothering with all the bureaucracy of FSA? Just make medical expenses deductible (not just the amount over 7%) and there would be no guesswork and no money left over for the “greedy” companies.

  6. Bill says:

    “Employers deposit the full amount you elect into your FSA at the start of the year. So if you withhold $2,000, get eye surgery in February and quit the company in March, the company is out the money that wasn’t pulled out of your paycheck for the remainder of the year.”

    NOT TRUE! This may be true with Medical FSA’s, (or at least, it’s true with those I’ve participated in), but NOT for Dependent Care FSA’s. For those, if you elect to put away the $5000 maximum, and it all gets spent in the first three months (because, let’s be serious, where in MN can you find dependent care for only $5K per year for even one kid, let alone multiple), you only get reimbursed as you put the money in. If you quit before the year’s done, you still only get out the money you put in, no more.

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