In a cafeteria plan health care FSA, who is at risk of forfeiture?

In a cafeteria plan health care flexible spending account (FSA), both the employee and the employer can be at risk of forfeiture concerning the unused funds. This risk arises from the "use-it-or-lose-it" provision that governs many FSAs.

For employees, if they do not use the funds contributed to their account during the plan year, they may lose any remaining balance. This is particularly relevant as employees often estimate their health care expenses at the beginning of the plan year, and if their actual expenses fall short of their contributions, they may face forfeiture of those unspent amounts.

Employers may also be at risk in the sense that they are responsible for managing the FSA, including the funds that employees contribute. If the contributions exceed the qualified expenses incurred by employees, the employer faces loss when they must absorb the forfeited amounts at the end of the plan year. Additionally, employers often have to account for these funds and may anticipate needing to return some of the unused contributions depending on FSA regulations and compliance.

Thus, in a cafeteria plan health care FSA, forfeiture risk exists for both the employee regarding their contributions and the employer in terms of managing plan liabilities appropriately.