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Plan Risks
What are the risks to the Employer?
Employees participating in the Flexible Spending Account can use their
whole election before the end of the plan year. This allows a participant to incur an expense that is greater than
what he/she has had with- held from their paycheck. Therefore the participant can have a negative balance during
the plan year. If that individual terminates employment with the company while having a negative balance the employer
would be responsible for the shortage in the account. In most cases there is usually some employees who do not
use their election completely by the end of the plan year. This money is forfeited and the employer retains that
money, which will cause a wash if a participant had left the company with a negative balance.
What are the risks to the Employee?
There is a "use it or lose it" rule that applies to Flexible
Spending Accounts. It is important that the employee who decides to participate in these plans estimate their expenses
they think they will incur during the year very carefully. If the participant over-estimates their election and
is not able to use up all the money by the end of the plan year the employer retains the left over money. The participant
loses that money.