Non-Health Benefits During FMLA: Life, Retirement, and FSAs

Non-health benefits during FMLA leave follow a different rule than your health insurance: your employer must treat life insurance, disability coverage, retirement participation, and similar benefits the same way it treats them during other forms of leave, no better and no worse. That single principle, set out in 29 CFR 825.209(h), decides most of what happens to your coverage while you’re out.¹

In practice, if your company continues paying life insurance premiums for employees on other unpaid leave, it has to do the same for you. If it stops paying during any unpaid leave, it can stop for FMLA too. What it cannot do is single out FMLA users for worse treatment.² Before your leave begins, pull your employee handbook or benefits summary and find out exactly what the company does with each benefit during unpaid leave. That policy is the answer.

Life and Disability Insurance

Group life insurance, accidental death and dismemberment coverage, and short- and long-term disability policies all fall under the “other benefits” category governed by your employer’s leave policy.¹ If the employer normally keeps these policies in force during unpaid leave by paying its share, it must do the same during FMLA leave. Any plan-wide changes (a new carrier, changed coverage levels) apply to you the same way they apply to active workers.

The real risk is a coverage gap. If your employer fails to pay a required share and the policy lapses, the employer can be on the hook for the full value of the benefit if you file a claim during the gap. Some employers keep coverage in place through unpaid FMLA leave specifically to avoid that exposure, then recover the employee’s share from you later. The regulations allow this recovery approach.³

Paying Your Share of Premiums

Because unpaid FMLA leave means no paycheck to deduct from, you and your employer need another way to handle your share of any premium that continues during leave. Common options are mailing checks on a set schedule, setting up electronic transfers, prepaying through extra payroll deductions before leave starts, or a written “catch-up” arrangement where the employer advances your share and you repay after you return. Get the terms of any catch-up in writing before leave begins. Federal rules let the employer recover the employee’s share of premiums advanced for non-health benefits whether or not you come back.³

One boundary worth flagging. You may have seen a rule requiring an employer to give 15 days’ written notice before dropping coverage when a payment is more than 30 days late. That rule, in 29 CFR 825.212, applies only to group health insurance.⁴ For life, disability, and other non-health benefits, the grace period and lapse triggers come from your employer’s policy and the insurance contract. Ask the benefits administrator what those are before you leave.

If you substitute accrued vacation, sick days, or other paid leave for part of your FMLA period, your paycheck continues, and premium deductions can continue through normal payroll. Alternative payment arrangements only start once you move into truly unpaid leave.

Retirement Plans

FMLA leave cannot create a break in service. Under 29 CFR 825.215, any period of unpaid FMLA leave is not counted toward a break in service for vesting or for eligibility to participate in a 401(k), pension, or other retirement plan.⁵ If your plan requires employment on a specific date to earn a year of service, you’re treated as employed on that date even if you’re on unpaid FMLA leave.

There’s a limit to that protection. While the leave cannot count against you for eligibility and vesting, employers don’t have to treat unpaid FMLA leave as credited service for actual benefit accrual.⁵ In a defined benefit pension, the formula that turns years of service into a monthly benefit won’t include the unpaid weeks. Your position on the vesting timeline is protected. The dollar accrual is not.

Employer Contributions and Matches

Employers generally don’t have to make matching or nonelective contributions to your 401(k) during unpaid FMLA leave. Without a paycheck, you can’t make employee deferrals, so there’s nothing for the employer to match. If the employer voluntarily makes contributions for employees on other unpaid leave, it has to do the same for FMLA leave. A long unpaid absence can leave a real hole in your retirement savings, and you won’t get to make up missed deferrals after you return. If you can front-load contributions before leave starts, that’s often the only way to close the gap.

401(k) Loans During Leave

If you have an outstanding 401(k) loan when unpaid FMLA leave starts, the missing paycheck creates a default risk. Repayments are normally payroll-deducted, and when the deductions stop, missed payments can trigger a deemed distribution.

The IRS allows plans to suspend loan repayments during a leave of absence for up to one year.⁶ When you return, you have to make up the missed payments, either by increasing each remaining payment or by paying a lump sum at the end. The total repayment period generally can’t exceed the original five-year term.⁷

Not every plan offers the suspension. If yours doesn’t and you miss payments, the outstanding balance can be treated as a taxable distribution, with income tax on the full amount plus a 10 percent early withdrawal penalty if you’re under 59½. Once a loan is treated as a deemed distribution, the default generally can’t be reversed.⁷ Check with your plan administrator before your leave starts.

Bonuses and Incentive Pay

An employer cannot use FMLA leave as a negative factor in employment actions, and that includes bonus decisions.² If you qualified for a bonus before leave began, denying it because you took FMLA is a violation.⁸

The Department of Labor draws a line between two kinds of bonuses. Attendance and safety bonuses reward you for showing up or following workplace rules, and an employer cannot disqualify you from one because you took FMLA leave; doing so would discourage employees from exercising their rights. Production bonuses require you to perform specific work during the bonus period, so if the bonus depends on hitting a sales target or finishing a project and you weren’t there to do the work, the employer doesn’t owe you the bonus for the time you were absent.⁹

Year-end bonuses with mixed criteria call for prorating. If part of the bonus depends on attendance and part on production, the employer should separate the components rather than deny the whole thing based on FMLA absence.

Health Flexible Spending Accounts

Health FSAs are funded through a cafeteria plan but treated as group health coverage for FMLA purposes, which gives you three choices at the start of unpaid FMLA leave. You can revoke your election for the rest of the plan year, and your employer cannot force you to keep it.¹⁰ You can continue coverage and keep paying premiums through prepay, pay-as-you-go, or a written catch-up arrangement. Or you can stop paying and let the employer advance the premiums under a written agreement, with repayment when you return.

If you keep coverage, the full annual election (minus prior reimbursements) stays available to you throughout leave under the uniform coverage rule, so you can submit claims up to your elected amount even if you haven’t paid all the premiums yet.¹¹

If coverage ends during leave because you revoked or stopped paying, you must be allowed to re-enroll when you return. Reinstatement is your choice; the employer can’t force you back in. If you do re-enroll, coverage for the rest of the plan year is prorated: your annual election amount is reduced for the period of leave when no premiums were paid, minus any reimbursements you already received.¹⁰

Reinstatement When You Return

Your employer must restore your benefits at the same level you had when leave began, adjusted for any changes that affected the whole workforce while you were out.¹² You cannot be required to requalify for any benefit you had before leave, meaning no new waiting periods, no new enrollment windows.

The regulation gives a concrete example of how strong this protection is: if your life insurance lapsed during unpaid FMLA leave, your employer cannot require you to take a physical to get it back.⁵ The same principle applies to disability coverage and other benefits that would normally require medical underwriting for a new enrollee. Your return is not a new-hire event. This is one reason many employers keep non-health coverage in force during FMLA leave even when policy wouldn’t strictly require it; the cost of restoring lapsed coverage without underwriting can exceed the cost of just paying through the leave.

If Your Employer Gets It Wrong

You can recover any lost wages, salary, or employment benefits caused by an FMLA violation, and an equal amount in liquidated damages that effectively doubles the payout, unless the employer proves it acted in good faith with reasonable grounds for believing it was complying. Courts must also award reasonable attorney fees and expert witness costs. You can file a complaint with the Department of Labor’s Wage and Hour Division or bring a private lawsuit, and available remedies include equitable relief like reinstatement and promotion.¹³

The exposure gets particularly large when an employer lets a life or disability policy lapse through its own failure and you suffer a covered loss during the gap. The employer’s liability can reach the full value of the benefit that should have been in place.

1
eCFR. 29 CFR 825.209 – Maintenance of Employee Benefits
2
eCFR. 29 CFR 825.220 – Protection for Employees Who Request Leave or Otherwise Assert FMLA Rights
3
eCFR. 29 CFR 825.213 – Employer Recovery of Benefit Costs
4
eCFR. 29 CFR 825.212 – Employee Responsibility to Pay Health Plan Premium Payments
5
eCFR. 29 CFR 825.215 – Equivalent Position
6
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
7
Internal Revenue Service. 401(k) Plan Fix-It Guide – Participant Loans
8
U.S. Department of Labor. Fact Sheet #28 – The Family and Medical Leave Act
9
U.S. Department of Labor. FMLA Opinion Letter FMLA-31
10
Internal Revenue Service. Effect of the Family and Medical Leave Act on the Operation of Cafeteria Plans
11
GovInfo. 26 CFR 1.125-3 – Effect of the Family and Medical Leave Act on the Operation of Cafeteria Plans
12
U.S. Department of Labor. Fact Sheet #28A – Employee Protections Under the Family and Medical Leave Act
13
Office of the Law Revision Counsel. 29 USC 2617 – Enforcement