Cafeteria plan payments must continue during FMLA leave

By Allen Smith Mar 7, 2006

An employer must pay the cafeteria plan allotment for an employee taking time off under the Family and Medical Leave Act (FMLA), according to a Department of Labor (DOL) opinion letter released Feb. 21.

A city offered its employees a cafeteria plan, allocating to each employee $452.08 per month to pay the premium for one of the city’s group health plans. The balance could be used, at the worker’s option, to provide dental/disability/life insurance or compensation.

Cafeteria plans let participants pay health insurance premiums on a pre-tax basis. Most small businesses are, however, unable to meet the nondiscrimination cafeteria plan rules due to their size.

The city did not provide the cafeteria plan allotment for workers on unpaid FMLA leave, until a union challenged this policy and the city wrote the DOL for an opinion. The city asked whether the FMLA requires it to continue cafeteria plan health payments for an employee on unpaid FMLA leave if city policy requires all employees on unpaid leave of any kind to make their own group health coverage payments.

The city maintained that if it paid the cafeteria plan allotment for an employee on unpaid FMLA leave, it would be discriminating against employees on other types of unpaid leave whose cafeteria plan allotments are not paid. Regardless, the DOL said the cafeteria plan allotment had to be paid during FMLA leave.

The FMLA and its regulations require maintenance on the same conditions of any group health coverage, regardless of whether it is provided through a flexible spending account or other component of a cafeteria plan, the DOL stated. As a result, the DOL concluded that “employees taking unpaid FMLA leave must have that portion of their cafeteria plan allotment allocated to group health insurance (including dental) premiums paid by the city in the same amount as paid prior to the start of FMLA leave.”

The city could not recover the cafeteria plan payments for periods of FMLA leave, the DOL added (FLSA 2006-3-A).

It reminded the city that its opinion letter is based exclusively on the facts and circumstances the city described. Existence of any other factual or historical background not contained in the city’s letter might require a different conclusion, the DOL cautioned.

Allen Smith, J.D., is senior legal editor for HR News.

Related resources:

FMLA and Other Leave Toolkit

Benefits Design, SHRM White Paper, June 2002.

Internal Revenue Service final rule on the effect of the FMLA on cafeteria plans, Federal Register, Oct. 17, 2001.

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