Must an employee’s full annual election be available for reimbursement at any time during the year or are reimbursements only made as monies are withheld?

IRS rules for a Health Care Reimbursement Account require that the employer make the full annual election available for reimbursement throughout the year regardless of how much an employee has contributed. This rule has caused some concern by employers offering Flex plans. The objection to this rule, however, has turned out to be more emotional than practical. Although collectively employees may contribute a considerable sum into their Health Care Accounts, most Health Care Accounts are for fairly small amounts. An employer’s exposure to loss is therefore relatively small. In addition, negative balances for terminating employees are offset by the payroll tax savings from the entire plan and any amounts participants forfeit at the end of the plan year. This rule is not an issue in Work-Related Dependent Care Accounts as reimbursements are only made as contributions are made.