03-000437 Elsa L. Lopez vs. Department Of Management Services, Division Of State Group Insurance Status: Closed Recommended Order on Tuesday, June 3, 2003.

Summary: Unused balance in state employee`s flexible spending account must be forfeited as a result of her failure to file exhausting the account before the April 15, 2002, deadline.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ELSA L. LOPEZ, )

)

Petitioner, )

)

vs. ) Case No. 03 - 0437

)

DEPARTMENT OF MANAGEMENT )

SERVICES, DIVISION OF STATE )

GROUP INSURANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

April 17, 2003, at sites in Tallahassee and West Palm Beach,

Florida.

APPEARANCES

For Petitioner: Margherita Downey, Esquire

Post Office Box 1188

West Palm Beach, Florida 33402

For Respondent: Sonja P. Mathews, Esquire

Department of Management Services

4050 Esplanade Way, Suite 260

Tallahassee, Florida 323 99 - 0950

STATEMENT OF THE ISSUE

The issue in this case is whether the unused balance in a

state employee’s flexible spending account must be forfeited as

a result of her failure to file claims exhausting the account

before the April 15, 2002, deadline.

PRE LIMINARY STATEMENT

By letter dated June 24, 2002, Respondent Department of

Management Services, Division of State Group Insurance, as

Administrator of the Salary Reduction Cafeteria Plan for state

employees, notified Petitioner Elsa Lopez that her claim for

reimbursement of dependent care expenses incurred in 2001 was

being denied, and her unused flexible spending account balance

forfeited, because she had failed to file the claim before the

deadline of April 15, 2002. In response, Petitioner timely

file d a Petition for Informal Hearing (“Petition”), which

Respondent later referred to the Division of Administrative

Hearings upon determining that disputed issues of fact had been

raised.

The final hearing took place on April 17, 2002, as

scheduled, with co unsel for both parties participating.

Petitioner testified on her own behalf and also called her

husband, Lucio Lopez. Additionally, Petitioner offered five

exhibits, numbered 1 through 5, which were admitted into

evidence. (Petitioner’s Exhibit 6 was i dentified but not

introduced.) Respondent presented J. Scott Sims, Esquire, as an

expert witness, together with agency employees Verla Lawson,

Sandie Wade, and Shirley Knight. Respondent also introduced

Respondent’s Exhibits 1, 3, 5, 6, 8 - 10, 13 - 15, 17, 19, 20, and

23, which were received into evidence.

A final hearing transcript was not filed. Each party

timely submitted a Proposed Recommended Order.

FINDINGS OF FACT

1. The State of Florida has established a Salary Reduction

Cafeteria Plan (“Plan”) for the benefit of its employees. The

Plan, which is set forth in a formal written document that was

most recently amended and restated as of September 20, 2000, is

designed to take advantage of provisions in the Internal Revenue

Code that permit the exc lusion of reimbursement for various

specified expenses —— such as medical and dependent care costs ——

from the gross income of employees who participate in a

“cafeteria plan” 1 that meets all the conditions prescribed under

federal tax law. Simply put, the Pla n allows state employees to

pay for certain qualified expenses with pretax dollars by

electing to have a predetermined amount deducted from each

paycheck and deposited into a “flexible spending account,” out

of which qualified expenses can be reimbursed, t ax free,

according to the terms of the Plan.

2. Pursuant to authority granted under Section 110.161,

Florida Statutes, the Florida Department of Management Services

(“DMS”) operates and administers the Plan. The Division of

State Group Insurance (“Divis ion”) is designated in the Plan

document as the Plan’s “Administrator.”

3. Petitioner Elsa Lopez (“Mrs. Lopez”) is a state

employee. She works as a secretary in the Office of the Public

Defender for the Fifteenth Judicial Circuit, in West Palm Beach,

Florida.

4. During the “open enrollment” period 2 in 1998, Mrs. Lopez

elected to participate in the Plan during “plan year” 3 1999,

authorizing the state to reduce her salary by $2,500 over the

course of the plan year, the money to be placed in a flexibl e

spending account for the purpose of reimbursing her (with pretax

dollars) for dependent care expenses. In this way, Mrs. Lopez

effectively sheltered $2,500 from federal income tax.

5. In late 1999, in order to continue paying for dependent

care with p retax dollars, Mrs. Lopez again chose to participate

in the Plan, authorizing the state to reduce her salary by

$3,500 during plan year 2000.

6. Mrs. Lopez made the above - described elections by

signing, in each instance, an Open Enrollment Form. She s igned

the first of these forms on October 15, 1998, and the second on

September 30, 1999. On both forms, an “employee certification”

appears just above Mrs. Lopez’s signature. This certification

states in pertinent part:

I understand that I will forfeit any

balance(s) remaining in my account(s) at the

end of the Plan Year in accordance with the

Internal Revenue Code Section 125. If

eligible expenses are not incurred during my

eligible period of participation equal to

the[ 4 ] account balance and/or if clai ms for

the expenses are not filed with the Division

of State Group Insurance by the claims

filing deadline date (April 15), I will

forfeit any remaining balance(s).

7. The risk of forfeiture to which the certification

refers is an important condition fo r the favorable tax treatment

accorded flexible spending accounts established under cafeteria

plans. Federal law requires that, to qualify for the tax break,

a cafeteria plan cannot provide for deferred compensation. See

26 U.S.C. § 125(d)(2)(A). The In ternal Revenue Service has

determined that plans which allow participants to carry over

unused contributions from one plan year to another operate to

enable participants to defer the receipt of compensation —— and

thus do not meet the conditions for excludin g contributions from

income. See Propeas. Reg. § 1.125 - 1, Q/A - 7 (49 F.R. 19321,

19324, 1984 WL 139403). Consequently, employees participating

in a qualified plan must timely “use or lose” their respective

contributions in exchange for the benefit of paying for health

and/or child care expenses 5 with pretax dollars.

8. To preserve the tax - exempt status of the Plan, DMS has

promulgated rules intended to prevent the Plan from providing

deferred compensation. For example, Rule 60P - 6.0081(3), Florida

Ad ministrative Code, provides that

[i]nitial requests for reimbursement for

expenses incurred during a participant’s

period of coverage must be postmarked or

received if not mailed, at the Department no

later than April 15 following the prior Plan

Year.

DMS has also mandated that “if unused portions of the

participant’s annual election remain in an account for which

otherwise eligible claims are not received prior to the claims

filing deadline , these funds shall be forfeited.” Rule 60P -

6.010, Florida Admini strative Code (emphasis added). The term

“claim filing deadline” is elsewhere defined as “April 15

following the participant’s period of eligibility.” Rule 60P -

6.006(1), Florida Administrative Code.

9. Faithful to the foregoing rules, the Plan document

prescribes a reimbursement procedure for dependent care expenses

that provides in pertinent part:

(a) Expenses That May Be Reimbursed. Under

the Dependent Care Component, a Participant

may receive reimbursement for [covered

costs] incurred during the Pl an Year for

which an election is in force.

* * *

(d) Use - It - Or - Lose - It Rule. If a

Participant does not submit enough expenses

to receive reimbursements for the full

amount of coverage elected for a Plan Year,

then the excess amount will be forf eited[.]

(e) Applying for Reimbursements. A

Participant who has elected to receive

dependent care benefits for a Plan Year may

apply for reimbursement by submitting an

application in writing to the Administrator

in such form as the Administrator may

pre scribe, during the Plan Year but not

later than by April 15 following the close

of the Plan Year in which the expense

arose[.]

Plan § 7.5

10. Mrs. Lopez understood that her funds were subject to

forfeiture under the “use it or lose it rule.” She also k new

that the claim filing deadline for plan years 1999 and 2000 was

April 15 following each respective plan year. What Mrs. Lopez

did not know, she insists, is that the claim filing deadline for

plan year 2001 was April 15, 2002.

11. Mrs. Lopez chose to participate in the Plan during

plan year 2001, not by submitting an Open Enrollment Form, as in

previous years, but by doing nothing, which resulted, by

operation of the Plan, in a “rollover election.” A rollover

election occurs, pursuant to the provisio ns of Section 4.4(b) of

the Plan document, when an existing participant fails timely to

submit an Open Enrollment Form, which inaction is deemed to

constitute an election of the same type of coverage as was in

effect for the previous plan year. In accorda nce with Section

4.4(b), Mrs. Lopez was deemed to have authorized the state to

deduct $3,500 from her salary for plan year 2001, such untaxed

amount to be used for the reimbursement of dependent care

expenses.

12. Mrs. Lopez does not complain that the ro llover

election thwarted her actual intent. In fact, Mrs. Lopez

desired to participate in the Plan during plan year 2001.

Because she did not submit an Open Enrollment Form for plan year

2001, however, there is no document bearing Mrs. Lopez’s

signature below an “employee certification” acknowledging the

April 15, 2002, claim filing deadline —— a date which, as just

mentioned, she denies having been aware of.

13. Mrs. Lopez goes beyond merely disclaiming knowledge of

the deadline; she charges that the sta te misled her into

believing that she could file claims for reimbursement through

June of 2002. According to Mrs. Lopez, she placed a telephone

call to the Division in February 2002 to request claims forms

and inquire about the deadline for filing claims, which she knew

from experience was approaching. The person with whom she

spoke, says Mrs. Lopez, told her that claims incurred during

plan year 2001 could be submitted until June 2002.

14. Needless to say, the Division disputes Mrs. Lopez’s

account of this purported conversation. However, because Mrs.

Lopez has not been able to identify the person with whom she

claims to have spoken, the date and time of the alleged call, or

even the phone number she dialed, the Division was hard - pressed

to present evi dence directly refuting Mrs. Lopez’s testimony.

Therefore, the Division adduced evidence concerning the routine

practices and procedures of its customer service employees.

This evidence persuaded the undersigned (who hereby finds) that

it is highly unlik ely Mrs. Lopez was informed by a customer

service representative 6 that the claim filing deadline was in

June of 2002. 7

15. That said, the undersigned accepts Mrs. Lopez’s

testimony (and finds) that she was told about a June 2002

deadline. Resolving conflicts in the evidence, he finds that

what happened, more likely than not, was that the customer

service person informed Mrs. Lopez, correctly, that the claim

filing run - out period lasted through the end of June 2002. (The

“claim filing run - out period” is the “period during which [DMS]

will accept documentation in support of claims filed within the

claim filing deadline. This period will not extend beyond June

30 following the end of the prior plan year.” Rule 60P -

6.006(2), Florida Administrative Code (emphasis added). The

claim filing run - out period gives a participant whose timely

filed claim lacks proper documentation a little extra time to

submit such documentation and thereby prevent denial of the

claim. See Rule 60P - 6.0081(4), Florida Administr ative Code.)

For reasons that cannot be determined, the customer service

representative probably believed, mistakenly but not

unreasonably, that Mrs. Lopez wanted to know whether additional

documentation (such as the child care provider’s invoice 8 )

relati ng to an already, or soon - to - be, filed claim for

reimbursement could be submitted at a later date. While the

customer service person most likely answered a different

question than the one Mrs. Lopez meant to ask, there is no

evidence that he or she acted improperly, negligently, or with

the intent to deceive Mrs. Lopez.

16. Mrs. Lopez failed to submit her claim before the

April 15, 2002, deadline. This forced the Division, as the

Plan’s Administrator, to declare her unused balance of $3,500

forfeited u nder the “use it or lose it rule.”

CONCLUSIONS OF LAW

17. The Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

Sections 120.569 and 120.57(1), Florida Statutes.

18. Mrs. Lopez bears the b urden of proving the allegations

in her Petition by a preponderance of the evidence. See Florida

Dept. of Transp. v. J.W.C. Co., Inc. , 396 So. 2d 778, 788 (Fla.

1st DCA 1981); Florida Dept. of Health and Rehabilitative

Services v. Career Service Commissio n , 289 So. 2d 412, 415 (Fla.

4th DCA 1974); Section 120.57(1)(j), Florida Statutes.

19. The relevant provisions of the Plan document,

pertinent statutes, rules, and regulations (which were cited

and, when necessary, quoted in the foregoing Findings of Fact)

are clear and unambiguous as a matter of law, capable of being

relied upon, and applied to the historical events at hand,

without a simultaneous examination of extrinsic evidence or

resort to principles of interpretation. To the extent that any

of t he various fact - findings herein are deemed to constitute or

reflect legal conclusions because they were derived from —— or are

declarations concerning —— the unambiguous language of the Plan

document, statutes, rules, or regulations, such fact - findings

are her eby incorporated by reference as if set forth in this

Conclusions of Law section of the Recommended Order and adopted

as such.

20. It is concluded that the Division, as the

Administrator of the Plan, has no discretion to waive either the

claim filing dea dline or the “use it or lose it rule.” If a

participant fails to submit, by the April 15 deadline, claims

that exhaust the amount of coverage elected for the preceding

plan year, then the Division has no choice but to treat the

participant’s unused balanc e as a forfeit. 9 The forfeiture rules

are facially harsh and, as here, can produce harsh results when

applied, 10 but they are part of the price that must be paid to

ensure that the Plan complies with federal law and maintains its

tax - exempt status.

21 . Mrs. Lopez urges that the Division be estopped from

enforcing the April 15, 2002, claim filing deadline in this

instance because she was told by an employee of the Division

that she had until June 2002 to seek reimbursement of expenses

incurred in plan year 2001. The facts do not support Mrs.

Lopez’s argument, however, as the undersigned has found that she

was provided accurate information about the claim filing run - out

period .

22. But even if Mrs. Lopez were given bad advice

concerning the claim fi ling deadline, the Division still would

not be estopped from declaring her unused balance a forfeit.

This is because, under the circumstances, the alleged

representation to Mrs. Lopez that her claims would be treated as

timely if received in June 2002 was a statement of law, not

fact, 11 and it is well settled that estoppel “cannot be asserted

against a government entity based on mistaken statements of the

law.” Ammons v. Okeechobee County , 710 So. 2d 641, 644 (Fla.

4th DCA 1998).

23. Moreover, agen cies must follow their own existing

rules. E.g. Cleveland Clinic Florida Hosp. v. Agency for Health

Care Admin. , 679 So. 2d 1237, 1242 (Fla. 1st DCA 1996), rev.

denied sub nom. South Broward Hosp. Dist. v. Cleveland Clinic

Florida Hosp. , 695 So. 2d 701 (1 997). Accordingly, the Division

is bound by Rule 60P - 6.010, Florida Administrative Code, which

mandates the forfeiture of any funds remaining in a

participant’s account after the reimbursement of all covered

expenses for which claims were timely submitted , and it cannot

be estopped from complying therewith. Indeed, the Division

simply lacks authority to accept any claim of Mrs. Lopez that

was filed after April 15, 2002, and estoppel cannot empower the

Division to do that which it is without authority to d o in the

first instance. See Town of Lauderdale - by - the - Sea, Florida v.

Meretsky , 773 So. 2d 1245, 1249 (Fla. 4th DCA 2000)(governmental

entity cannot be estopped from revoking building permit that it

was without authority to grant).

24. Finally, Mrs. Lop ez argues that there was no “meeting

of the minds” between the parties sufficient to create an

enforceable contract because she never agreed that her funds

could be forfeited if claims were not filed before April 15,

2002. Assuming for argument’s sake (wi thout deciding) that

state contract law governs the Plan, the undersigned concludes

that, by electing to participate in (and thus to be bound by the

terms and conditions of) the Plan, Mrs. Lopez did agree to the

forfeiture of all funds not claimed by April 15, 2002. The

forfeiture provisions and claim filing deadline are clearly

spelled out in the Plan document, which constitutes the written

“agreement” between the parties. Mrs. Lopez is presumed to have

read and understood the provisions of the agreement into which

she entered. See Allied Van Lines, Inc. v. Bratton , 351 So. 2d

344, 347 - 48 (Fla. 1977); Qubty v. Nagda , 817 So. 2d 952, 958 - 59

(Fla. 5th DCA 2002). 12

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMME NDED that that Division enter a final order

denying all claims for reimbursement of dependent care expenses

incurred in plan year 2001 that Mrs. Lopez submitted after the

claim filing deadline of April 15, 2002, and declaring the

entire unused balance rema ining in her account for that year

forfeited.

DONE AND ENTERED this 3rd day of June, 2003, in

Tallahassee, Leon County, Florida.

___________________________________

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The D eSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of June, 2003.

ENDNOTE S

1 / Generally speaking, a “cafeteria plan” is a written plan

under which “all participants are employees” and “the

participants may choose among 2 or more benefits consisting of

cash and qualified benefits.” 26 U.S.C. § 125 (d)(1).

2 / The term “open enrollment” refers to the period during which

eligible employees can elect to participate in the Plan. See

Rule 60P - 6.0063, Florida Administrative Code.

3 / The term “plan year” means “a 12 - month period beginning

January 1 and ending December 31.” Rule 60P - 6.006(11), Florida

Administrative Code.

4 / Here, the Open Enrollment Form for plan year 1999 uses the

possessive pronoun “my” in place of the article “the.” The

meaning is exactly the same either way.

5 / Title 26, Unit ed States Code, Section 129 provides an income

exclusion for dependent care expenses if the employer furnishes

dependent care assistance pursuant to a qualified “dependent

care assistance program.” Florida offers such a program as a

benefit under the Plan .

6 / Since it is not known whom Mrs. Lopez spoke with, the

possibility exists that she talked to someone unfamiliar with

the Plan who, being unaware of the actual claim filing deadline

and unwilling to admit ignorance in this regard, made up a date

that turned out to be incorrect. The undersigned finds,

however, that it is more likely Mrs. Lopez spoke with someone in

the Division’s customer service unit who was trained to answer

questions concerning the Plan.

7 / This is because the evidence is overwhel ming that the

customer service personnel were well aware that April 15, 2002,

was the claim filing deadline for plan year 2001.

8 / Mrs. Lopez testified that her child care provider was

dilatory in rendering a statement for services provided in 2001,

whic h in turn prevented Mrs. Lopez from sooner filing her claim

for reimbursement of the cost of such services.

9 / If the Division were to bend the rules in even one difficult

case, then it would be practically bound, as a matter of

consistency and fairness, to show mercy in the next one, and the

one after that, all of which eventually could lead to disastrous

results if the Internal Revenue Service consequently were to

declare the Plan unqualified for favorable tax treatment

pursuant to Title 26, United Stat es Code, Section 125. See

American Family Mut. Ins. Co. v. United States , 815 F.Supp. 1206

(W.D.Wis. 1992)(employer required to pay deficiency after IRS

determined that cafeteria plan failed to qualify for tax - exempt

status).

10 / The loss of several tho usand dollars will undoubtedly be a

severe financial blow for the Lopez family to absorb. While the

undersigned is sympathetic to their plight, the law is clear and

unambiguous and must be applied without emotion.

11 / The existence of administrative rule s concerning the claim

filing deadline is, of course, a matter of fact. Similarly, the

contents of these rules can be communicated in declarative

statements of fact. Thus, for example, it would be incorrect as

a matter of fact (not law) to state that the re is no

administrative rule defining the term “claim filing deadline,”

because such a rule exists in fact. Likewise, if one were to

declare that Rule 60P - 6.006(1), Florida Administrative Code,

specifies June 15 as the deadline for filing claims, such an

assertion would be incorrect as a matter of fact (not law), for

the Rule actually specifies the date “April 15.” In contrast,

when, as alleged here, the reliance - inducing statement reflects

the speaker’s understanding of what the law means or how it

opera tes, or describes conduct that complies with or violates a

rule, then the representation is less a factual assertion than a

legal opinion.

12 / It is not necessary that assent to a contract be given by

signing a document. See Bullock v. Harwick , 30 So. 2d 539, 541 -

42 (Fla. 1947). In this case, Mrs. Lopez signified her

acceptance of the state’s “offer” to continue participating in

the Plan during plan year 2001 by not submitting an Open

Enrollment Form canceling or changing her existing coverage,

which was a mode of assent that the state had specifically

invited. Thereafter, Mrs. Lopez accepted benefits under the

Plan (tax savings during plan year 2001) without protest,

confirming through her conduct that a “contract” had been made.

COPIES FURNISHED :

Margherita Downey, Esquire

Post Office Box 1188

West Palm Beach, Florida 33402

Sonja P. Mathews, Esquire

Department of Management Services

4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399 - 0950

Simone Marstiller, Interim Secretary

Depart ment of Management Services

4050 Esplanade Way

Tallahassee, Florida 32399 - 0950

Robert Hosay

Interim General Counsel

Department of Management Services

4050 Esplanade Way

Tallahassee, Florida 32399 - 0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All partie s have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.