Question

Who is at risk of forfeiture in a cafeteria plan health care FSA?

A. No one is at risk
B. Employee only
C. Employer only
D. Both employee and employer"

Answer 1

The risk of forfeiture in a cafeteria plan health care FSA exists for both employees and employers, emphasizing the importance of effective management and communication to ensure optimal utilization of funds. (option D is the correct answer)

Step-by-step explanation:

In a cafeteria plan health care Flexible Spending Account (FSA), both the employee and employer may be at risk of forfeiture under certain circumstances. The risk arises because contributions to an FSA are made through salary deductions, and these funds must be used for eligible medical expenses within the plan year or the grace period, if applicable.

For employees, the risk lies in contributing more than they end up spending on qualified medical expenses within the specified timeframe. Any remaining balance at the end of the plan year or grace period may be forfeited, resulting in a loss of funds.

Employers also face a risk, as they may need to forfeit any unused funds remaining in the employees' accounts if the plan does not include a carryover provision or a grace period. This can occur if employees do not utilize the full amount they contributed, and the unspent funds revert to the employer.

Both parties can minimize the risk of forfeiture through careful planning, communication, and offering features like a carryover provision or grace period.