After you file

Yes, your employer is correct.  If you do not use the funds, you forfeit them to the plan.

When you enter your W-2 into TurboTax, you will enter the $400 from Line 10. Since you forfeited the $400, you will not be taxed on it.  You will need to file Form 2441.  After entering the information in your W-2, continue though the interview.  When you are asked, Did You have a Flexible Spending Account to pay for child or dependent care?, answer yes, and enter $400 was left in the plan at the end of the year. Now, Form 2441 should have $400 in lines 12 and 14, leaving a taxable benefit of $0.

Here is an article you may find helpful: Flexible Spending Accounts