Delays in Flexible-Spending Account Reimbursements Quickly Lead to Frustration

Q I opened a flexible-spending account through my employer, and every pay period money is taken out of my account to pay for the various benefits I have elected to take. My only problem is that my company sometimes takes months to reimburse me for my legitimate claims against this balance. Is there any way I can speed things up? Is there a government agency to which I can report this problem? What laws govern these types of programs?

--B.L.B.

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A First, let’s establish whether you are, indeed, enrolled in a true “flexible spending account” or whether you have confused it with a “cafeteria-plan,” which allows employees to choose among a variety of company-sponsored benefits depending on their needs. The two programs are often mistaken for each other because both involve a level of choice and flexibility.

Real flexible-spending accounts are established in accordance with the federal Internal Revenue Code and allow employees to set aside a portion of their pretax earnings to pay for eligible health and medical expenses as well as certain dependent (usually child and nursing home) care costs. These plans, which must be administered by an employer, essentially allow employees to save up to 40% on health and dependent care costs because you are permitted to spend the money on these expenses that would otherwise have to be paid to Uncle Sam in taxes. Because of this obvious tax advantage, most of the nation’s largest employers, and many of the smaller ones, offer flexible spending accounts to their employees.

How do the plans work? At the beginning of each year, enrollees must estimate their annual health and dependent care expenses for the coming 12 months and tell their employer how much money they want deducted on a pretax basis each pay period to cover the expected charges. The employer will then deduct this amount from each paycheck and set it aside in a special account to be spent by the employee via voucher reimbursement over the ensuing 12 months. Money not spent must be forfeited by the employee, so it pays to carefully estimate your potential eligible expenses before enrolling in the program.

That said, let’s turn to your problems: getting reimbursed. Proposed regulations to Section 125 of the Internal Revenue Code (they’ve been in the proposal stage for more than five years) address only health-care flexible spending accounts. There are no regulations governing reimbursement for dependent care accounts. According to these regulations, companies must reimburse employees for eligible health-care expenses at least monthly or once some “reasonable” minimum amount has been spent by the employee. Each employer’s plan is permitted to specify what that minimum amount is.

What can you do? Your first step should be to read the rules of your employer’s flexible spending plan. Perhaps you are waiting a long time between payments because your individual vouchers do not meet the reimbursement threshold. If your vouchers are within the guidelines, your next step should be to complain to the managers of the department administering the program under the benefits claim procedures of the Employee Retirement Income Security Act (ERISA). Don’t be shy about taking your case to the highest possible level within the company. If you remain dissatisfied with your employer’s response and you have evidence that the company is violating the federal regulations, your last administrative resort is to file a complaint with the Pension and Welfare Benefits Administration of the Department of Labor. However, be warned: This agency is responsible for overseeing a great deal and may not put flexible spending account reimbursement delays at the top of its to-do list. In any event, the agency is at 790 E. Colorado Blvd., Suite 514, Pasadena, CA 91601.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053 Or send e-mail to carla.lazzareschi@latimes.com