Flex 101: The Basics of Flexible Spending Accounts October 2015

Agenda

 Types of Flexible Benefits – Premium Only Plan, Flexible Spending Account

 Benefits of offering Flexible Spending Accounts  Who is eligible to participate under these plans  Election Changes

 How do these plans work?  Administrative Procedures and Implementation of the Plan  Qualified Expenses that can be covered under these accounts  The New FSA Rollover

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Types of plans offered through a Cafeteria Plan     

Premium Only Plan (POP) Flexible Spending Account - Medical Flexible Spending Account – Dependent Care Flexible Spending Account - Transportation Limited Flexible Spending Account (Dental & Vision)

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Premium Only Plans POP Plans  Premium Only Plan (POP) allow employees to elect to withhold a portion of their pre-tax salary to pay for their premium contribution for most employer-sponsored health and welfare benefit plans.  The plan offers a simple way to obtain favorable tax treatment for benefits already offered.  Medical  Dental  Vision  Flexible Spending 4

Flexible Spending Accounts Medical FSA

 Allows an employee to fund certain medical expenses on a pre-taxed basis through salary reduction to pay for out of pocket expenses that aren’t covered by insurance for employees, spouses, and dependents.

 Employees may elect as much as $2,550 annually of their pre-tax salary for medical reimbursement expenses.

 The average working employee in the U.S. spends more than $1,000 annually on these types of benefits

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Flexible Spending Accounts Dependent Care

 Attractive benefit for employees who pay for child-care or daycare for their parents, etc.

 Employees may elect as much as $5,000 annually of their pre-tax salary for dependent care expenses.

 Qualified dependent care expenses may include the care of a child under the age of 13, daycare for parents, care for a disabled spouse or a dependent incapable of caring for himself, and summer day camps. 6

Flexible Spending Accounts Transportation  The transportation FSA is appealing for employees who rely on commuter transit for work

 The plan offers a simple way to obtain favorable tax treatment for:  Parking  Van Pool  Transit Passes  Transportation benefit maximum are set forth by the IRS.  The benefits must be used as commuting to and from work.

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Limited Flexible Spending Account Dental and Vision

 Offered on a limited basis alongside a Health Savings Account (HSA)

 Similar administration to “regular” Medical FSA, however limited to dental and vision expenses

 Reimbursement for medical expenses incurred after the deductible has been met

 Complies with IRS guidelines for Health Savings Account (HSA)

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Benefits for Employees  Most employees are already paying for these expenses out of their own pockets with after-tax dollars.

 Participating in a cafeteria plan reduces an employee’s taxable salary and increases the percentage of their take-home pay.  Employees receive a greater deduction on dependent care expenses than what’s offered by a traditional tax credit at the end of a year.

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Benefits to the Employer  Every dollar your employees contributes to the Section 125 Plan reduces the employer’s payroll. FICA is not paid on amounts contributed to the Section 125.  In many cases, this savings can add up to as much as 20 percent of every dollar being passed through the plan.  Implementing a cafeteria plan can “soften the blow” of premium increases to employees.  Employees can use tax savings to invest in their retirement plans.

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Who is eligible to participate?  Virtually any company can sponsor a cafeteria plan for its employees.      

“S” or “C” Corporations Partnerships Non-Profit Organizations Government Entities Limited Liability Companies (LLC) Sole Proprietorships

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Who is ineligible to participate?  Partners  A “More-Than-2%” Shareholder in an “S” Corporation  Owners of “C” Corporation, unless they elect no more than  

25% of total plan contributions Members of an LLC Self-employed individuals

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Election Changes  New employees have 30 days after hire to make an election.  Changes through out the course of the plan year are limited to the qualified events below:

    

 

Marriage Birth of a baby Divorce Death Termination of Employment by Employee, Spouse or Dependent that causes loss of eligibility Medicare or Medicaid eligibility FMLA leaves of absence

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Getting Started – How do they work?  Employee make elections prior to each plan year.  The amount is deducted from the employees paycheck pre-taxed over the course of the plan year.  The Employee’s election cannot be changed or revoked unless there is a Qualifying Event.  Employees can be reimbursed either by using a Flex Debit Card or by submitting a claim for reimbursement

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Getting Started – How do they work?  It is important for employees not to overestimate their annual election amounts, as the FSA is a ‘use it or lose it’ benefit. So any unused balances remaining at the end of each plan year are forfeited.  There is a run out for which an employee can file claims for each plan year, as well as the employer can elect to do a Plan Extension (2 ½ months) or Rollover.  If there is a FSA surplus at the end of the plan year, the remaining balance shall be retained by the employer to offset administrative expenses or future employee benefit costs.

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The New FSA Funds Rollover  In 2013, the US Department of Treasury modified the long-standing FSA ‘use it or lose it’ rule.  FSA participants can now rollover up to $500 of unused funds into the future plan year.

 Future year maximum election is not impacted (remains $2550)  Employer benefits:  Increased enrollment & elections = greater tax savings  Higher employee benefit package satisfaction

 Employee benefits:    

Greater flexibility Lower Risk Reduced waste More Savings

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Administrative Procedures & Implementation of the Plan  A Plan Document must be established.  The document outlines specific details.  A description of the employee benefits that are covered through the plan  Participation rules and eligibility  Annual limits and any employer contributions  Election procedures  The plan year

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Administrative Procedures & Implementation of the Plan  A summary plan description (SPD) must be distributed to all participants.  ERISA requires that the SPD be distributed to all plan participants no more than 90 days after an employee becomes a participant or within 120 days of the plan becoming subject to ERISA.  The SPD summarizes specific details of the plan, claim filing procedures and information regarding plan sponsorship and administration.

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Administrative Procedures & Implementation of the Plan  Ongoing compliance that must be attended to.  Nondiscrimination requirements  Plans can’t discriminate as to eligibility and benefits provided. Failure to meet the nondiscrimination requirements would eliminate the tax-free status of the benefits provided to the highly compensated and/or the key employees.

 Discrimination Testing  Needs to be performed at the beginning of each plan year as well as at the end of each plan year.

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Qualified Expenses  Employees can use tax-free contributions to pay for qualified healthcare expenses  Qualified expenses include:       

Co-pays, coinsurance, deductibles Dental and orthodontia Eye exams, contact lenses, eyeglasses Prescriptions Over-the-counter medical supplies Lasik And More! View the full list of eligible expenses: www.irs.gov/publications/p502

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Flex Debit Cards  Debit cards give employees easy access to FSA funds  Works just like a standard debit card, but funds are spent form the

employee’s FSA  Real time, on-demand access to funds  Eliminates cash purchases & reimbursement hassles  Point-of-sale purchase, provider payment, direct deposit employee reimbursement

 Debit cards can be used to purchase qualified healthcare products/services at:  Physician & doctor offices  Hospitals  Pharmacies  Opticians/vision care locations  Dental offices  And, even qualifying retail stores!

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Online FSA Access Online account access engages participants and increases FSA value  Access to account information & transaction activity  Communication and alerts  Replace/re-order debit cards  FSA statements & transaction history  Reimbursement request Employer benefits:  Access to real-time account balance information for employees  Access to reports that will help you manage your Flexible Spending checking account

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Q& A Joni Horvath Flexible Benefits/COBRA Supervisor 314-594-2757 [email protected]

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