Can [Update Needed] be removed without disabling/enabling FileVault?
If the Mac in question is running OS X 10.8.x or later, you can remove users from the list of FileVault enabled accounts using the fdesetup remove command. To remove the account using the username, run the following command:

sudo fdesetup remove -user username


Successful removal of the account will not produce any additional output. 



If the account being removed is not currently enabled for use with FileVault 2, an error message will be displayed.



Does the icon you're seeing look like this?



If it does, this isn't a user account. It's a password directly associated with the disk's encryption. You will need to decrypt in order to get rid of it.