Flexible Spending Account upon Termination

Yes - it's his to use but once you are termed, you can't use it any more. So, if he wants to use the full 2500, he better get going now. I don't think it is morally wrong at all. It's a risk both sides take. You could use the full 2500 on January 1 and quit on January 2 or they can term you in November and if you haven't spent anything, you lose it. I'd tell him to use it up and fast.

And yes, he could have spent the 2500 on January 1. Assuming it's all for medical. For dependent/child care expenses, you only get out what you put in.

Technically speaking, a person can spend 100% of their flex spending $ at/after the beginning of the new year. So as an example, say you use 100% of your flex spending in January and then leave the company in February (for any reason) that is allowed. Likewise if you didn't use your money and you are at December (and therefore paid in all year) and leave the company...you don't get the money back and it is your employer's to keep.

i believe he has access for the full amount $2500 prior to his end date. Those expenses can only be used for legitimate health care expenses. If the end date is Sept 1, then all of the expenses must be incurred and paid by September 1 for them to be included in this years FSA. If he incurs expenses in November (although it is the same year) those are not eligible. I think i would request A Q and A session with HR on this issue for all employees.

Actually, I recently looked into this. My job may be eliminated this year. MAY be. My son has expensive bills and we pretty much meet what i put in at the beinning of the year. I can make a claim against the FSA for the full amount in January. If I do lose my job, then I am not liable for the additional and it is not reported as income. Years ago at another job, I felt as you do. I made a claim only for the amount I had in the account and they sent me the full amount of my EOB.
If someone is terminated midyear and has money in the account, they do have until the end of the year to have expenses to claim and can wait until the deadline in March to send it in.

That's his money, not yours. I don't even know why your making it your business. Stay out of it, it's none of your business.

I worked for a global testing laboratory and my division was dissolved in August. I had spent more than I had contributed and brought that up. They said no worries, we were clear. I don't know if this was because it was a ginormous company or it was part of the termination process. They would not take reimbursement.

Yes...he can. Last year I took too much out...lost about $500 because we all had glasses, all our teeth work done, no other medical expenses. It happens both ways. (of course now I have to have more work done on my teeth)

I can use all $2500 on that now, if I needed to and for whatever reason may occur and I leave my company I would not have any repercussions.

I had a medical spending account at the last office I worked at. I had used all of when I was terminated. I had used all of it by April. It was a hard year. They money I had used but not paid into the system was taken out of my last paycheck. The owner claimed he had already cleared it with the company and that that money was his to take out. The very next day he called my house and told me to come get the check because it turns out he has no right to keep that money. He was very angry about it because it was a small company so it came out of his paycheck. If it's possible, I'm sure he changed the contract with the company that managed the medical account.
The $2500 is his the first day it is available for him to use it. Had I worked at that company all year as I had planned, the money would have been paid back. He let me go. So I don't feel bad about using the money. Same with your friend, had he worked for the same company all year the money would be paid back. It was not his choice for the company to be bought out or for the plan to change. If he took the money planning to quit after he used it, then I would agree with you regarding the morality of the issue.

My understanding is it's based on IRS codes. Flexible Spending Accounts are regulated by the IRS.

Any money left in the account unspent at the end of the plan year goes to the company, per the IRS, for administrative costs and to cover those people who spend it all and leave before it's all recouped. It's part of the risk on both parties with these accounts.

Your friend, does of course, have to be able to prove that the entire 2500 was spent on eligible expenses, though.

My daughter changed employers and I think, tho I'm not sure, she continues to use her flexible spending account because it's the money she contributed pretax. She has a prepaid VISA or MC issued with that amount on it.

I would check with human resources to be sure she understands the procedure. If this person isn't knowlegeble and confident then I'd call the insurance company directly. My daughter often did that when she had questions.

I would think that she would have the option of taking out the money. She would have to pay taxes on it but she wouldn't lose it. As you said, it's her money.

Or.....is this the amount that the company put into the account for her? If so it's not hers. It's hers to use but when terminated it does revert back to the company because, perhaps, the contract with the insurance company is also terminated.

Your co-worker is right. It's his decision on how he feels about it morally.