2015-2016 Flexible Benefits Plan Information Guide Revised 02-17-15
Table of Contents
Introduction
1
Dependent Care Assistance Program vs. the Child Care Tax Credit
17
Child Care Subsidy
17
Health Care Flexible Spending Account (FSA) 2
The Impact on your Cash Flow
18
Dependent Care Assistance (DCA) Program 3
Non-Discrimination Testing
18
Commuter Benefits Spending Accounts
3
Qualifying Status Change
18
Who Is Eligible?
3
Tax Savings
4
FLEX
PLAN
OVERVIEW
Pre-tax Premium Plan
Pre-Tax Premium Plan
2
4
Health Care FSA, DCA and Commuter Benefits
4
HEALTH CARE FLEXIBLE SPENDING ACCOUNT AND DCA AT-A-GLANCE Chart
19
Special Rules
20
Flexible Benefits Plan Administration
5
Administrative Fees
6
Payroll Deductions
6
EFFECT ON SOCIAL SECURITY AND DEFERRED COMPENSATION
When You Can Enroll or Make Changes
6
Social Security
21
2015-16 Open Enrollment
7
Deferred Compensation
21
Reimbursement by the FLEX Plan
22
Qualifying Status Change eflex Card
7 8
How Does It Work?
8
Using the eflex Card
9
DETAILED
IF YOUR EMPLOYMENT STATUS CHANGES
INFORMATION
Pre-tax Premium Plan Qualifying Status Change Health Care Flexible Spending Account
10 10 11
Whose Expenses are Eligible
11
Reimbursement Amounts
11
Eligible Expenses
12
Ineligible Expenses
13
Estimating Your Expenses
13
Comparing FSA and the Federal Tax Deduction for Medical Expenses
14
Dependent Care Assistance Program
14
Who Can Use the DCA Program?
14
Eligible Expenses
15
Ineligible Expenses
16
Disability / Workers’ Compensation
23
Termination of Employment
23
Retirement from the DWP
24
Summary of Your Responsibilities
25
Introduction The LADWP Flexible Benefits (FLEX) Plan is designed to let you use pre-tax money to pay:
Health and dental premiums through the Pre-tax Premium Plan
Eligible out-of-pocket health care expenses through the Health Care Flexible Spending Account (FSA)
Eligible dependent care expenses through the Dependent Care Assistance Program (DCA)
Eligible mass transit and/or parking costs through the Commuter Benefits Spending Accounts (TRANSIT and PARK)
You can enroll in one, two, three or all four types of Flex accounts. You will never have to pay taxes on the money you set aside or the money that is reimbursed to you for any of the FLEX Plan benefits. So really, FLEX lets you pay these expenses tax-free! Enrolling in the FLEX Plan can help:
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Reduce your taxable salary so you pay less in income taxes
↑ ↔
Increase your take-home pay
Offset your costs for health care coverage and eligible expenses.
The amount of tax dollars you save by participating in FLEX will depend on the benefits you choose, the amount of pre-tax money you choose to have deducted from your paycheck, and your tax bracket. Your individual tax savings will be different from those of other participants depending on your personal circumstances.
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FLEX Plan Overview This section will give you a brief breakdown of each of the four components of the FLEX Plan.
Pre-Tax Premium Plan The Pre-Tax Premium Plan is a benefit that allows you to pay for your health care premium contributions on a pre-tax basis. You are automatically eligible to participate in the Pre-Tax Premium Plan if you are enrolled in a LADWP or union-sponsored health or dental plan where you pay a premium for your medical and dental plan. Your contributions are deducted from your paycheck before taxes are withheld. This lowers your taxable income, and pay less in taxes. However, If eligible employees do not wish to enroll in the Pre-Tax Premium Plan, they will need to notify the Flex Administrator during Open Enrollment. Once enrolled in the FLEX Pre-Tax Premium Plan, it cannot be stopped or changed during the plan year and would have to wait until the next Open Enrollment period to do so. The exception to this is when an employee experiences a qualifying status change (see page 7 for more details). The Pre-tax health and dental premiums are paid directly to your health insurance carrier. Please Note: If you do not pay monthly premium contributions, or you are not enrolled in a LADWP or union-sponsored health or dental plan, you are not eligible for the FLEX Pre-tax Premium Plan.
Health Care Flexible Spending Account The Health Care Flexible Spending Account (FSA) allows you to set aside pre-tax money for eligible health-related expenses that are not covered by your health plan. You can set aside up to $2,550 a year to pay for deductibles, co-payments, orthodontia services, chiropractic services, and other out-of-pocket health care expenses. See pages 11 and 12 for a list of eligible and ineligible expenses under the Health Care FSA. Equal installments of the amount you elect will be deducted from each of your bi-weekly paychecks throughout the plan year. If you enroll in the FLEX Health Care FSA, you will not be able to stop or make changes to your Health Care FSA until the next Open Enrollment period, However, if you experience a qualifying status change, you may stop or make changes within 30 days of the event (see page 7 for more information on qualifying status change).
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Dependent Care Assistance Program If you (or you and your spouse, if married) work and need child care or elder care, the Dependent Care Assistance Program (DCA) will help you save on taxes. The DCA allows you to set aside up to $5,000 a year of pre-tax money to pay for dependent care expenses so that you (or you and your spouse) can work. See page 15 for a list of eligible and ineligible expenses under the DCA. Equal installments of the amount you elect will be deducted from your bi-weekly paycheck on a pre-tax basis throughout the plan year. If you enroll in the FLEX Dependent Care Assistance Program, you will not be able to stop or make changes to your DCA until the next Open Enrollment period, unless you experience a qualifying status change. (See page 7 for more information on qualifying status change.)
Commuter Benefits Spending Account The Transportation Spending Account (TRANSIT) gives employees a way to lower their cost of living by reducing the cost of getting to work. The Internal Revenue Service (IRS) allows you to use up to $130 pre-tax dollars per month ($1,560 annually) to pay for your mass transit. However, $960 is the annual maximum election for LADWP employees because of the $50 pre-tax monthly subsidy ($600 annually) provided through the CARS Office ($1,560 IRS Maximum $600 LADWP Pre-Tax Subsidy = $960 annual maximum election). Please note: The process of submitting your monthly receipt to the CARS Office to receive the LADWP $50 pre-tax monthly subsidy remains. You can use your Flex Plan TRANSIT account to cover your transportation costs over the $50 subsidy from LADWP. The Parking Spending Account (PARK) allows you to set aside up to $250 pre-tax dollars per month to pay for your non-LADWP facility parking costs. Therefore, if you pay for parking at a location from where you commute to work, this expense could be paid for with pre-tax dollars. Please note: The parking fee at LADWP facilities is already a pre-tax deduction.
Who is Eligible? You are eligible to participate in any of the LADWP FLEX Plan benefits if you are an active LADWP Civil Service employee regularly scheduled to work at least 20 hours per week. You are not eligible to participate in the LADWP FLEX Plan if you are an exempt daily rate employee, a part-time exempt employee, or on a limited appointment.
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Tax Savings Pre-tax Premium Plan The Pre-tax Premium Plan allows you to pay for your health care contributions on a pre-tax basis. These pre-tax deductions lower your taxable income, which means you pay less in taxes. The amount you save on taxes will offset the cost of your premium.
Health Care FSA, DCA and Commuter Spending Accounts Contributions toward your Health Care FSA, DCA, and Commuter Spending Accounts are made with pre-tax dollars. This means that set amounts are taken out of your bi-weekly paycheck before Federal and Social Security taxes (and in most cases, your state and local income taxes) are withheld. As a result, you will pay less in taxes because you have a lower taxable income. When you use the funds set aside in your flex account(s) for eligible health, dependent day care and commuter expenses, you still do not pay taxes on that money.
This is a tax-free benefit!
Health Care FSA, DCA and Commuter Benefits Example: Let’s assume Julie earns $45,000 a year and she is in a 28% tax bracket – for purposes of federal and state income tax and Social Security taxes. If Julie puts $500 in the Health Care FSA , $1,000 in the Dependent Care Assistance Program, and $500 in the Commuter Benefits Spending Accounts this would be her tax savings:
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Pre-Tax
After Tax
Annual Salary
$45,000
$45,000
Contributions to Health Care FSA, DCA and CSA
- $2,000
- $0
Taxable income
$43,000
$45,000
- $12,040
$12,600
$30,960
$32,400
- $0
- $2,000
$30,960
$30,400
$560
$0
28% tax rate Subtotal net income Health care, dependent care and commuter expenses paid after taxes Spendable income Tax savings ($2,000 x 28%)
Please note: One administrative fee of $1.86 ($1.86 x 26 pay periods = $48.36 per plan year) is charged to a participant regardless of the number of Flex Plan accounts enrolled in (please refer to page 6, Administrative Fees). The example above is a simplified case. Your actual savings will vary based on your marital and tax filing status, the number of exemptions and dependents you claim, and your FSA and DCA contribution level. Also, in some cases, an individual will save more money by taking the tax credit for dependent day care rather than using the DCA. Please consult with a tax professional before making this decision.
Flexible Benefits Plan Administration eflexgroup, Inc. (eflex), a third-party administrator, administers the LADWP FLEX Plan. Please direct all questions and requests to them. eflex enrolls employees, processes claims, maintains account records, issues reimbursement checks, and provides semi-annual statements to each FLEX Plan participant. You can contact eflex at the following numbers:
https://eflexgroup.com (24-hour automated account information during the entire plan year) to access account balances, obtain claim forms, and review claim and payment activity.
1-877-933-3539 (24-hour Customer Care Center in order to speak with a FLEX Plan representative throughout the plan year)
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Administrative Fees There is no administrative fee for the Pre-tax Premium benefit. This service is free to employees with LADWP or union-sponsored health and/or dental plans that require payment of premiums by employees. One administrative fee of $1.86 applies to the Health Care FSA, DCA and/or Commuter Benefits Spending Accounts (regardless of the number of flex accounts you have). The $1.86 is deducted per pay period, for a total of $48.36 per year ($1.86 x 26 pay periods). This amount is subject to change. There are no enrollment or re-enrollment fees. If you participate in the Health Care FSA, DCA, and Commuter Benefits, you will only have to pay one administrative fee per pay period. Please note: The administrative fees may change. Changes, if any, will be announced prior to the start of the plan year.
Payroll Deductions If you elect to participate in the Pre-tax Premium Plan, your health care premiums will be deducted on a pre-tax basis from one paycheck per month throughout the plan year. The amount of money you choose to set aside for the Health Care FSA, the DCA and/or the Commuter Benefits will be deducted in equal installments on a pre-tax basis from each paycheck throughout the plan year. New employees will have deductions taken in equal installments from each of the remaining pay periods during the plan year. It is important for you to review your paychecks to ensure your contributions to the FLEX Plan are being deducted properly. If you notice errors in your pre-tax deductions, please notify eflexgroup immediately.
When You Can Enroll or Make Changes to Your Flex Plan Contributions You can enroll in or make changes to any of your FLEX Plan elections during the annual Open Enrollment period, Once enrolled, you may only make a change, if you experience a qualifying status change during the plan year. New LADWP employees may enroll within 60 days from date of hire.
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2015-2016 Open Enrollment Open Enrollment for the 2015-2016 plan year is April 27 – May 8, 2015. If you do not enroll during the Open Enrollment period, you will not be able to enroll or make changes until the next Open Enrollment period. The only exception is if you experience a qualifying status change during the plan year. If you are enrolled in the FLEX Plan, and do not want to make any changes for the 2015-2016 plan year, you do not need to do anything during the Open Enrollment period. If you are enrolled in the FLEX Plan and you do NOT want to continue your participation in the Plan, you must actively cancel your FLEX Plan benefits during the Open Enrollment period. If you do not cancel your FLEX Plan benefits during the Open Enrollment period, your previous plan year deduction amounts will continue for the 2015-2016 plan year. Please note: If you are a new employee, you have 60 days from your date of hire to enroll in the FLEX Plan. New employees should contact the LADWP FLEX Plan Administrator in Room 559 of the John Ferraro Building, or call 1-213-367-2043, within 60 days from your date of hire to enroll in the FLEX Plan.
2015 Open Enrollment is
April 27 - May 8, 2015 Qualifying Status Change Participants experiencing a qualifying status change during the plan year (July 1, 2015 to June 30, 2016) may:
Enroll in the FLEX Plan
Increase or decrease your annual election(s) for your Health Care FSA or DCA
Increase or decrease the amount you contribute to the Pre-tax Premium Plan.
If you experience a qualifying status change, you have 30 days from the date you experience the change to enroll in or make changes to your Health Care FSA or DCA elections. A qualifying status change includes, but is not limited to, the following:
Your legal marital status changes – you marry, you divorce, your spouse dies, you become legally separated, or you have your marriage annulled.
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The number of your dependents changes – a baby is born, adopted, or placed for adoption, or you lose a dependent through loss of legal custody or death.
Employment status changes for you, your spouse, or a dependent child – termination of employment, starting or returning from an unpaid leave of absence, and any other change in employment status that affects your eligibility for benefit coverage.
A dependent’s status changes – a dependent child is no longer eligible because he or she reaches the maximum age for coverage (turns 13 years of age).
A change in residence – you, your spouse, or dependent moves which affects your health plan coverage.
In addition to satisfying one of the events shown above, any change you make to your Health Care FSA and/or your DCA must be consistent with your change in status as outlined below:
Gain and/or loss of eligibility – the change in status must cause you, your spouse, or dependent child to gain or lose eligibility under your benefit plan or a plan covering your spouse or dependent child.
Corresponding election change – any change you make to your FLEX Plan must be relevant to your change in status (i.e. you adopt a child and need to increase your Pre-tax Premium deduction or DCA).
eflex Card The convenience of the eflex Card makes your eflex FSA easy to use. You can use your eflex Card for eligible out-of-pocket expenses on Health Care, Dependent Care or Commuter. Please note that it’s critical to use the card appropriately.
How does it work? The eflex Card is merchant coded and is accepted by all VISA merchants. Merchant codes are listed according to industry (e.g., restaurant, pharmacy, dental office). Only valid merchant codes are “open” to the card which means it may be denied at a restaurant or gas station. The card is also coded to approve merchandise through the Information Identification Approval System (IIAS) at some locations, primarily pharmacies. If the merchant has implemented the IIAS, the item may be approved at the point of purchase.
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To ensure compliance with the IRS, eflexgroup may ask for additional documentation such as copies of your insurance explanation of benefits (EOBs), itemized receipts, insurance payment coupons, or cash register receipts. Please note: when eflexgroup does request documentation, it is important that you submit it to them on a timely basis to avoid potential deactivation of your eflex Card.
Using the eflex Card Just swipe the eflex Card like you would any debit card when you make a covered purchase. eflexgroup will take care of paying the provider and deducting the money from your eflex FSA account balance. Here’s how it works: The amount you have available in your eflex FSA is the balance on the eflex Card. You may use the eflex Card up to this amount, but never over. You will be able to check your available balance at www.eflexgroup.com.
There are no transaction fees or pin numbers with the eflex Card. Simply swipe the eflex Card at the provider location and choose the “credit” option. Once approved, funds are instantly withdrawn from your eflex FSA and paid to the provider. eflexgroup will monitor your eflex Card transactions. When you complete a transaction, they may request documentation (e.g., receipts) either through an email (if they have your email address) or by a mailed letter. If you receive such a request, you must submit the documentation they request within the required time frame along with a copy of the request. If they don’t receive documentation after two notices, eflexgroup may deactivate your card. You will then be required to submit payment to them to cover the amount of the eflex Card transaction that required documentation. eflexgroup will reactivate your account when they receive the required documentation. Your card will not work at an ATM or for other non-health related charges. Please Note: Only your eflex Card will be pre-loaded with your annual 2015-2016 FSA election. If you also have DCA, TRANSIT and PARK accounts, funds will be uploaded to your eflex Card each pay period after your installment amounts are deducted from your bi-weekly paychecks. Please ensure that you use up your remaining 2014-2015 balance. The deadline to incur expenses for the current 2014-2015 plan year is June 30, 2015. Your eflex Card transactions or claims for reimbursement for the 2014-2015 plan year will be denied for expenses incurred after June 30, 2015. The deadline to submit claims for the 2014-2015 plan year is September 30, 2015. This is an IRS rule.
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Pre-tax Premium Plan This section provides a more detailed information regarding the Pre-tax Premium Plan The Pre-Tax Premium Plan is a benefit that allows you to pay for your health care premium contributions on a pre-tax basis. You are automatically eligible to participate in the Pre-Tax Premium Plan if you are enrolled in a LADWP or unionsponsored health or dental plan where you are responsible to pay for the premiums. Your premium payments are deducted from your paycheck before taxes are withheld. This lowers your taxable income, which means you pay less in taxes. The tax savings offset your out-of-pocket costs for premiums. The Pre-tax Premium Plan simply instructs the LADWP Payroll Office to deduct your existing health and/or dental premiums before taxes. Whether or not you pay a premium, and the amount of the premium, are both matters governed by your MOU and addressed in the LADWP Health Plans Office (Room 564), or the IBEW Local 18 Benefit Service Center. Eligible employees are enrolled in the Pre-Tax Premium Plan by default. If eligible employees do not wish to enroll in the Pre-Tax Premium Plan, they will need to notify the Flex Administrator during the Open Enrollment period. Once enrolled in the FLEX Pre-Tax Premium Plan, you will not be able to stop or make changes to your plan until the next Open Enrollment period. However, if you experience a qualifying status change, you may do so within 30 days of the date of change. Pre-tax health and dental premiums are paid directly to your health insurance carrier. If you do not pay monthly premium contributions (as most employees do NOT), or you are not enrolled in a LADWP or union-sponsored health or dental plan, you are not eligible for the Flex Pre-tax Premium Plan.
Qualifying Status Change If you experience a qualifying change of status during the plan year, you must notify the Health Plans Office by speaking to a staff member in Room 564 of the John Ferraro Building, or by calling 1-213-367-2023, within 30 days of the effective date of the change. If the qualifying change in status results in a premium or your selection of a new health and/or dental carrier, it is necessary to notify the FLEX Plan Administrator within 30 days of the change so that the appropriate changes can be made to your FLEX Plan. In this way, the premiums for the correct plan will be deducted pre-tax. Excepting a change of location that removes you from the service area of your current health insurance carrier, the Health Plans Office does not permit you to choose a new health and/or dental carrier during the plan year due to a change of status. When only the amount of your existing health and/or dental plan premium(s) changes due to a qualifying change of status or circumstances beyond your control, it is not necessary to make any changes to your FLEX election since the code for that health and/or dental plan is already in place. 10
Health Care Flexible Spending Account This section provides a more detailed information regarding the Health Care Flexible Spending Account Even though you have medical and dental coverage, you may have bills for health care services that you have to pay out of your own pocket. These might include deductibles, co-payments, amounts over reasonable and customary (R&C) limits, and other expenses that your medical and dental plans do not cover. When you participate in the FLEX Health Care FSA, you can set aside pre-tax dollars to pay for these out-of-pocket expenses.
Whose Expenses are Eligible for Reimbursement? You can use your Health Care FSA to pay for expenses that you and your eligible dependents incur. Your eligible dependents include: Dependents under your medical and/or dental plan (for example, your legal spouse, or unmarried dependent children up to age 26) Anyone you can claim as a dependent on your federal tax return
Please note: Domestic partners must qualify as tax dependents under IRS regulations (Section 152) in order to be eligible.
Reimbursement Amounts If you prefer not to use the eflex Card, you can submit a claim for reimbursement from your Health Care FSA up to the full amount of your annual election amount (less any amount already paid to you from the account). This means that if you file a claim for an amount that is more than your current amount balance, but is within your total annual election, your future payroll deductions will offset the claim. The money you contribute toward your Health Care FSA accumulates each pay period; however, at any time during the plan year, you can submit a claim for reimbursement up to the full amount of your annual election. AUTOMATIC CARRY-OVER OF UP TO $500 For Health FSA only, any remaining unused balance of up to $500 at the end of the plan year will be automatically carried over to the next plan year. Any amount over $500 will be forfeited (the “Use it or Lose it” IRS rule applies). Example: Let us assume that Jeff is contributing $50 per paycheck, or $1,300 per plan year, to the Health Care FSA. In early August (after only three paychecks), Jeff submits a claim for $800 – his first claim of the year. Jeff will be reimbursed the entire $800, even though he has only $150 in his account. Then, over the remainder of the plan year, his payroll deductions are used to make up the amount that has already been paid from his FSA. *Important – You can never be reimbursed for more than the total annual amount you are contributing to your account. Using the example above, if Jeff’s claim was $1,500 (or $200 above his total annual election amount), his reimbursement would be for $1,300 and he would not get the $200 over the election amount.
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Expenses that are Eligible for Reimbursement (Per IRS) You can take advantage of the Health Care FSA if you or your dependents have eligible health care expenses that are not covered by your medical, dental, or vision plan. Eligible expenses are those that qualify as a federal deduction for medical expenses, which include, but not limited to: Services by an M.D. or Licensed Practitioner Christian Science Acupressurist Practitioner
Ophthalmologist
Podiatrist
Acupuncturist
Optometrist
Psychiatrist/Psychologist
Dermatologist
Chiropractor Obstetrician Pediatrician Surgeon Maintenance & Support Devises (requires a letter of medical necessity from a licensed physician) Support hose, orthotics, and orthopedic shoes (in excess of regular shoe cost) Durable medical equipment such as wheelchairs, crutches, wigs for hair loss due to medical treatment Oxygen equipment and oxygen Cost of equipping an automobile for the disabled (in excess of regular cost) Prostheses and prosthetic supplies Colostomy supplies Capital expenses – the amount between the cost of improvement or special equipment installed and the increased value of the home Psychiatric care – costs of supporting mentally ill dependents at a specially equipped center where dependent receives care Fees in conjunction with aid for learning disabilities Medical/Hospital Services NOT Covered by Your Plan or Another Plan Diagnostic services by or under direction of M.D. Surgical services by or under direction of M.D. X-rays and radiological services for diagnosis or treatment Expenses for donating or receiving an organ transplant Nursing services for specific medical ailments by an RN or LPN who is not related to the employee Services of a physical, speech, or an occupational therapist Ambulance Laboratory fees Prescription drugs, including insulin, laetrile, birth control pills, when prescribed by M.D. Vaccinations and immunizations Dental, Vision and Hearing Dental checkups and care (by a DDS or dental hygienist), including fees, x-rays, fillings, braces, extractions, and dentures Orthodontics Cost of guide dog for blind or deaf Braille books and magazines (in excess of regular book cost) LASIK surgery, RK surgery or PRK surgery, eyeglasses and contact lenses (including solutions) Special devices for the blind (tape recorder, typewriter) Hearing aides and care (including batteries) Cost of note-taker for a deaf person in school Household visual alert & expenses for special phone equipment for a deaf person Adapting a television for the deaf Other Health-Related Expenses Treatment of alcoholism or drug dependency, including expenses for meals and lodging at a treatment center Acupuncture; acupressure Lead-based paint removal in the home Smoking cessation programs and related drugs Over-the-counter drugs (if used for the diagnosis, treatment, or prevention of disease or affecting any function of the body) Vitamins, remedies, and dietary supplements (if specifically directed by a physician) Other Eligible Expenses Deductibles and copayments Special schooling for physically or mentally disabled Transportation and lodging expenses incurred for medical reasons Legal fees paid to authorize treatment for mental illness
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Expenses NOT Eligible for Reimbursement (Per IRS) Examples of ineligible expenses under the Health Care FSA include, but are not limited to: Ineligible Expenses Athletic or health club membership Cosmetic procedures and/or surgeries Household help Any illegal treatment Dancing or ballet, even when recommended by a doctor Cost of remedial reading classes for a non-handicapped child Insurance premiums of any type Weight reduction programs for general well-being Teeth bleaching or whitening Toiletries and sundry items (such as toothpaste, deodorant, makeup) Psychologist fees for counseling services not related to a medical condition (such as marital counseling)
For more complete lists of eligible and ineligible expenses under the Health Care FSA, refer to the IRS Publication 502.
Estimating your Expenses Because of the “Use it or Lose it” rule (see page 20, Special Rules), you should elect the total amount that you expect to spend for out-of-pocket health care expenses in the plan year. However, in case you over-estimated your planned costs and ended up with unused remaining balance at the end of the plan year, any amounts up to $500 will be carried over to the next plan year automatically. The following are some tips on estimating your health care expenses:
Consider payments toward your deductible or office co-payments
Include the amount you personally pay for routine visits to your family doctors, dentists, or other health care providers (do not include any amounts that are covered by your medical or dental plan)
Include expenses you incur for dependent day care
If you have predictable expenses for prescribed medications, contact lens solution, chiropractic visits, or other routine care, add these to the total (as long as you pay for these items out-of-pocket)
Review your checkbook for health care expenses you have incurred that you may have again during the upcoming plan year
Refer to the list of eligible and ineligible expenses.
Remember that any health care expenses you pay with pre-tax dollars through the Health Care FSA cannot be itemized as deductions on your income tax return. A tax calculator is available to help you estimate expenses for you and your eligible dependents. You can access this calculator on eflex’s website at: https://www.eflexgroup.com/forms/FSA/
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Comparing the Health Care FSA to the Federal Tax Deduction for Medical Expenses Depending on your financial and tax situation, the federal tax deduction for medical expenses may save you more money than participating in the Health Care FSA. To claim health care expenses as a federal deduction, you must have expenses that exceed 7.5% of your adjusted gross income. Therefore, if your medical expenses meet or exceed that limit, you may be better off to NOT participate in the Health Care FSA. You have two options:
Claim an expense as a federal tax deduction, or
Request reimbursement for the expense from the Health Care FSA.
You cannot do both with the same expense. If you are not sure which alternative provides the better savings for you, consult a tax or financial advisor before you decide. If your out-of-pocket medical expenses exceed 7.5% of your adjusted gross income, you may be better off claiming your expenses as a federal tax deduction.
Dependent Care Assistance Program This section provides a more detailed information regarding the Dependent Care Assistance Program (DCA) of the FLEX Plan You can use the Dependent Care Assistance Program to pay for certain dependent day care expenses with pre-tax dollars that allows you (or you and your spouse, if married) to work or seek employment.
Who Can Use the Dependent Care Assistance Program? To use the DCA, you must be working or seeking employment during the time your eligible dependents are receiving care and you must meet one of the following requirements:
You are a single parent
You are married and you must pay dependent care expenses so that you and your spouse can work, or look for work
You are married and you work and your spouse is a full-time student for at least five months in a plan year
You are married and you work and your spouse is disabled and unable to care for him/herself and/or your dependent(s)
You are divorced or legally separated and you have custody for most of the year (even if the other parent claims the dependent for tax purposes)
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Whose Expenses Are Eligible for Reimbursement? To be eligible for reimbursement, expenses must be for:
Any person under age 13 whom you claim as an exemption on your federal income tax return
A person who regularly lives with you who cannot care for him/herself due to a physical or mental disability, and whom you can claim as an exemption on your federal tax return (unless that person has a gross income of $3,000 or more per year)
If the dependent receives care outside your home, he or she must spend at least eight hours in your home each day. You do not have to cover your dependents under LADWP’s benefits program in order for the expenses to be eligible for reimbursement.
Reimbursement Amounts Any time during the year, you can submit a claim against your DCA for the amount of dependent day care expenses you incurred. You will be reimbursed up to the amount in your account. If the actual expense is more than your current account balance, an additional reimbursement will be mailed when sufficient deposits have been made to your account. Example: Let us assume Janet is contributing $100 per paycheck to the DCA. At the end of July (after two paychecks), she submits a claim for $300. Since Janet has only $200 in her account at this time, she’ll receive a reimbursement for $200. After her next payroll deduction, she will be reimbursed the remaining $100. There is no need to file another claim for the $100 difference. When you submit a claim against your DCA, you will be reimbursed up to the amount of your current account balance only. If you submit a claim in excess of your account balance, the portion of your claim that exceeds your account balance will be held until sufficient payroll deductions have been deposited into your Flex DCA account.
Expenses that are Eligible for Reimbursement (Per IRS) Eligible expenses include many of the expenses you pay that allow you (or you and your spouse, if married) to work or seek employment. These include, but are not limited to:
At-home day care
After-school care
Summer day camps
Nursery schools and preschools (if the cost of schooling cannot be separated from the cost of care)
Care at day care centers that meet local regulations, provide care for six or more children, and receive payment for services
care outside of the house for dependents under age 13, or a disabled dependent who regularly spends 8 hours a day in your household
Charges of a day care provider, unless the person is your or your spouse’s dependent for federal income tax purposes, or your child or stepchild who is under the age 19 at the end of the year
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Expenses NOT Eligible for Reimbursement (Per IRS) The following are examples of expenses that are not eligible for reimbursement:
Tuition for a child in kindergarten or higher Dependent day care expenses that you deduct on your federal tax return Dependent health care expenses Baby-sitting so you can attend a social event Dependent day care expenses you pay while you are not working or do not otherwise meet the eligibility requirements Expenses for your dependents who do not meet the qualifications (i.e. a dependent who is over age 13, is not your child or who does not live in your home for at least eight hours a day) Care provided by anyone you claim as a dependent on your federal income tax return Care provided by your spouse, a dependent, or your child who is under age 19 at the end of the year Residential nursing home care Expenses for live-away care facilities Tuition, transportation, clothes and entertainment Education for a child in the kindergarten or higher Services provided before your participation in the plan began or after your participation ended Overnight camps Food and education expenses unless they are provided by the nursery school or day care center as part of its preschool care services
Estimating your Expenses Because of the “Use it or Lose it” rule (see page 20), you should contribute only as much as you expect to spend for dependent day care expenses in the plan year. Although dependent care expenses may be hard to predict, there are ways to estimate certain expenses:
Talk with your dependent day care provider to determine your costs for the coming year (you’ll get a good idea of how much to contribute to your DCA, within the maximum limitations)
If your child is in school, remember that your costs will probably be higher for the summer months
Remember that any dependent day care expense you pay with pre-tax dollars through the DCA cannot be itemized as a deduction on your income tax form
Before you enroll in the DCA, you may wish to consult with a tax advisor.
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Dependent Care Assistance Program vs. the Child Care Tax Credit The IRS provides a federal tax credit for dependent day care expenses. You can use either the federal tax credit or the Dependent Care Assistance Program, but you cannot use both for the same expense. For this reason, it is important to calculate your tax savings both ways and use the method that saves you the most in taxes. The following chart will help you compare the two options: When do you use it?
What’s the difference? What’s the limit on eligible expenses?
DCA
Federal Tax Credit
You enroll in this account before the plan year begins. It reduces your taxable income during the year, so you pay less in taxes from your paycheck throughout the plan year. This method reduces your taxable income immediately. The maximum amount you can contribute to this account depends on your tax-filing status: $2,500/year if you’re married and file taxes separately $5,000/year if you’re single, or if you’re married and file jointly
You use this method after the calendar year ends to take an income tax credit based on the dependent care expenses you have had during the plan year. This method reduces the tax you owe for the calendar year. The maximum amount of expenses that you can apply toward a tax credit depend on the number of dependents you have: $3,000 for one child’s expenses $6,000 for two or more dependent children’s expenses
Please note: If you are married and file separate tax returns, you cannot use the federal child care tax credit.
We strongly recommend that you consult with a tax advisor to determine which alternative is best for you. You and your tax advisor should evaluate your tax treatment under both methods and select the method that is best for you. eflex has a worksheet that may help you determine whether the DCA or the child care tax credit will provide the most tax savings for you. To obtain a worksheet, call eflex at 1-877-933-3539 or visit: https:// www.eflexgroup.comuploadsFormsDependent20Care20Tools/00069DepdendentCareWork sheet2010.pdf. You may also contact the FLEX Plan Administrator in Room 559 of the John Ferraro Building or call 213-367-2043.
Child Care Subsidy If you have a child enrolled in a LADWP-sponsored child care center and you receive a child care subsidy, you also need to take this into consideration when enrolling in the DCA. Your DCA maximum of $5,000 per year will be lowered by the amount of your subsidy for that year. The sum of your DCA account and your DWP child care subsidy (if any) for the tax year will appear on your W-2 form in the box marked “dependent care benefits.” For example, if your child care subsidy is $25 per week for 52 weeks out of the plan year, your total child care subsidy will be $1,300 for the year. In this example, the maximum amount that you will be able to set aside under the DCA for the plan year is $3,700, the difference between the $5,000 DCA maximum and the $1,300 subsidy. 17
Whether you use the DCA or the tax credit depends on your income, the amount of your dependent day care expenses, and how you file your taxes every year. To get an estimate of what your subsidy will be for the next year, you can contact LADWP’s Family Care Office in Room 567 of the John Ferraro Building, or call 1-213-367-4778. If the sum of your subsidy and your DCA election exceeds $5,000 for the plan year, the excess will be applied as taxable income on your W-2 for that calendar year. Please note that the amounts of your DCA account and any LADWP child care subsidy you may have will reduce (dollar for dollar) the maximum amount of expenses you can apply toward the federal child care tax credit.
The Impact on Your Cash Flow Cash flow may be a problem for you during the first month that you participate in the DCA. Your contributions will be deducted from your paycheck while you are paying your dependent day care expenses. Normally, you will receive reimbursement within 15-30 days after your claim is received. You may want to consider this cash flow impact when deciding on your contribution amount.
Non-Discrimination Testing Under the Internal Revenue Code 129 that governs the DCA, the contributions of benefits provided under the DCA may not discriminate in favor of employees who are highly compensated employees. Average benefits provided to employees who are not highly compensated must equal at least 55% of the highly compensated employees’ average benefit. The LADWP must perform an annual test to determine if the DCA meets the 55% requirement. If the DCA fails the 55% test, the LADWP must reduce the annual elections of highly compensated employees on a pro rata basis in an amount necessary to satisfy the 55% requirement. For questions and more information on the DCA non-discrimination testing, please call the FLEX Plan Administrator at 1-213-367-2043.
Qualifying Status Change If you experience a qualifying status change during the plan year, you may be able to change your DCA elections if the status change directly affects your elections. For example, you have a baby and you need to add money to your DCA for increased day care costs. You must make changes to your DCA elections within 30 days of the status change. Please refer to page 7 for a list of qualifying events.
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Health Care Flexible Spending Account and DCA At-a-glance The following chart is an overview of the Health Care FSA and Dependent Care Assistance Program: Health Care FSA What do I use it for?
Eligible health care expenses that would not otherwise be paid for by a health plan or other source.
What are some examples of eligible expenses? (see IRS Publications 502 & 503 for complete lists)
Copayments, deductibles, and other expenses not covered or partially covered by a health plan (acupuncture, orthodontics, etc.).
What are some examples of ineligible expenses?
Medicare insurance, cosmetic surgery, and life insurance premiums.
DCA Eligible day care for your dependent children or disabled dependent that enables you (or you and your spouse, if married) to work. In-house day care provider, nursery or day care center, day camp, and other fees you incur for dependent day care. Tuition expenses for kindergarten or higher, Saturday night babysitting, and transportation expenses to and from day care.
How do I participate?
You must choose to participate either within 60 days of your date of hire, during the Open Enrollment period, or within 30 days following a qualifying status change (page 7)
How do I make contributions?
Contributions are deducted in equal amounts from each of your paychecks throughout the plan year before taxes are calculated.
How much can I contribute for the year? Can I change the amount I contribute outside of the Open Enrollment period?
$2,550
$5,000
Only if you have a qualifying status change (see page 7).
Can I be reimbursed for my full annual election amount at any time?
Yes – you can be reimbursed up to the annual election amount any time within the plan year regardless of your current account balance.
What’s the deadline for filing claims?
Eligible expenses must be incurred within the plan year (July 1st through June 30th). After the plan year ends on June 30th, you have 90 days after June 30th to file claims, which is September 30th (deadline).
Can I use the money in my Health Care FSA to pay for dependent day care expenses, and the money in my DCA to pay for health care expenses? What happens to the money left in my account at the end of the plan year?
No – the Health Care FSA can ONLY be used exclusively to pay for eligible health care expenses.
No – you are only allowed reimbursement from the available balance you have contributed up to the claims request date.
No – the DCA can ONLY be used exclusively to pay for eligible dependent day care expenses.
Per IRS Rules, after the plan year ends and you still have unused dollars n your account, it will be forfeited. However, for Health FSA only, any unused remaining balances of up to $500 will be automatically carried over to the next plan year. Any unused amounts over $500 will be forfeited. 19
Special Rules The tax savings available through the Health Care FSA and DCA are made possible by Sections 125 and 129 of the Internal Revenue Service (IRS) Code. The tax savings available through the TRANSIT and PARK are made possible by Section 132 of the IRS Code. These sections of the tax law also impose some restrictions, as shown in the following table:
RULE Use it or Lose it (DCA)
EXPLANATION For Dependent Care Account (DCA), you have to use up all your elected amounts in your account by the end of the plan year (June 30, 2015). You have 90 days from June 30th to file your claims (September 30, 2015). Per the “Use it or Lose it” IRS Rule, any unused money left in the DCA at the end of the plan year will be forfeited.
You can carry over your Health FSA balances over to the next plan year
At the end of the plan year (June 30th), any remaining unused balance in your Health FSA of up to $500 will be automatically carried over to the next plan year. However, any remaining balance over $500 will be forfeited (the “Use it or Lose It” IRS Rule applies).
You can carry over your TRANSIT and PARK account balances into the next plan year, if you continue participation in the Flex Plan
Any leftover TRANSIT and PARK account balances will be carried over to the new plan year account 30 days after the start of the new plan year. In order to use any balance from the prior plan year, you must still be an active participant. If you cancel participation, your account balance is forfeited.
You must incur expenses before you can be reimbursed
If you choose not to use the eflex Card, you must incur an expense before you can file a claim, in order to receive reimbursement. You may file a claim after you incur (pay) an eligible expense.
You cannot transfer money between accounts
For compliance purposes, you cannot use money from the Health Care FSA to pay dependent day care expenses or commuter expenses, nor can you use money from the Dependent Care Account (DCA) to pay health care or commuter (CSA) expenses.
You cannot change your elections during the plan year
If you sign up for either the Health Care FSA or the DCA, you cannot change your election until the next plan year’s Open Enrollment period, unless you have a qualifying status change (see page 7). May sign up, cancel or change CSA anytime.
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Effect on Social Security and Deferred Compensation Social Security Because you do not pay Social Security taxes on contributions toward your Health Care FSA or DCA, your future Social Security benefits may be slightly reduced if:
You earn less than the Social Security wage base
Your pre-tax contributions to your accounts reduce your pay below the Social Security wage base.
If you earn more than the Social Security wage base, your Social Security benefits are not affected. For most people, the current value of tax savings outweighs the potential impact on possible future Social Security benefits.
Deferred Compensation Enrolling in the Health Care FSA or the DCA may lower your Deferred Compensation Plan deduction. The maximum Deferred Compensation contribution allowed is the lesser of $18,000 per year (or whatever the applicable amount is for the year) or 100% of your taxable income (defined as gross wages less other pre-tax contributions for retirement, supplemental employee benefits, etc.). Because your FLEX Plan contributions are deducted before the Deferred Compensation Plan deduction, your Deferred Compensation Plan deduction may be lower. Please consult with a tax advisor for more detailed information.
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Reimbursement by the FLEX Plan If you enroll in the Flex Plan’s Health and Dental Pre-tax Premium, you do not have to fill out any claim forms. Payroll will simply deduct the health and dental premiums pre-tax automatically, and they will be paid directly to your health insurance carrier(s). If you do not use the eflex Card, to be reimbursed under the Health Care FSA, DCA, and/or Commuter Benefits, you must submit your claim to eflexgroup. You can submit claims any time during the plan year. On the claim form, you will need to tell eflexgroup who you are, where to send your reimbursement check, and details of your expense. A provider receipt describing the service and indicating payment received is required. We recommend using your insurance’s Explanation of Benefits or provider receipt. For dependent day care claims, the provider’s tax ID number or Social Security number must be included with every claim. Claim forms can be picked up in room 559 of the John Ferraro Building. Forms are also available from the eflexgroup.com website at https://www.eflexgroup.com/forms/. Email your completed claim forms to:
[email protected] Or mail your completed claim forms to the address below: eflexgroup Atten: Claims Administrator 2740 Ski Lane Madison, WI 53713 Or fax your completed claim forms and receipts/statements to eflex at 1-877-231-1287.
eflex Customer Care Center representatives cannot confirm the receipt of faxed claims. However, you can verify receipt of your faxed claim(s) by calling toll-free 1-877-933-3539 from any touch-tone telephone. A Customer Care Center representative can provide your account balances, pending claim amounts, and claim and payment activity. You can also access account information, including claims status, any time by logging into your secure eflex account at https://employee.eflexgroup.com/. Health Care FSA and/or DCA balances not claimed by the end of the plan year will be forfeited under the IRS “Use it or Lose it” rule. If your claim is denied for payment because it lacks information, you have 60 calendar days, or until the end of the run-out period, whichever is greater, to provide missing information.
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If Your Employment Status Changes During the Plan Year Disability and Workers’ Compensation If you participate in the Pre-tax Premium Plan and you go on a Disability or Workers’ Compensation leave of absence, your premiums cannot be deducted on a pre-tax basis during the leave. Therefore, you must pay your premiums when billed by the Health Plans Office. Since these payments are made with after-tax dollars, they cannot be adjusted to non-taxable income. Likewise, the LADWP Disability and Workers’ Compensation payroll systems do not have the capability to deduct your FSA contributions on a pre-tax basis. However, you may continue your participation while on leave by electing one of the following two options:
If you know the duration of your absence, you may “pre-pay” the amount of the deductions that will be missed during the leave. Simply contact the LADWP Flex Plan Administrator at 1-213-367-2043 to adjust the final deduction before your leave to reflect the correct amount.
Contact the LADWP Flex Plan Administrator immediately upon your return to active status so that the balance from the missed deductions may be divided equally among the remaining pay periods in the plan year.
Please note that it is your responsibility to notify the LADWP FLEX Plan Administrator before you take a disability leave of absence or immediately upon your return to active status.
Termination of Employment If you terminate employment with LADWP and you are enrolled in the Health Care FSA, you should call eflexgroup to find out if you have money remaining in your spending account. If you do have money in your spending account, and you have not incurred enough expenses to claim the balance of your account, the balance will be forfeited. However, you can avoid this forfeiture if you elect to continue your benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) within 60 days from the time you terminate employment. If you choose to continue your participation under COBRA, you must continue to make regular Health Care FSA payments on your own through eflexgroup, but the payments cannot be adjusted to nontaxable income. Post tax contributions will be subject to the normal administrative fee. You can continue your participation under COBRA to the end of the plan year.
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Retirement from the LADWP Before you retire, it is important that you contact eflexgroup at 1-877-933-3539 to find out how much money you will have in your spending accounts at the time you plan to retire. You must plan to incur enough expenses while still actively employed with the LADWP to claim the balance of your account at retirement. At retirement, if you have not incurred sufficient expenses to claim the balance of your spending account(s), your balance will be forfeited. You may choose to continue your health care FSA under COBRA within 60 days after you retire. Contributions that you make during your COBRA period cannot be adjusted to non-taxable income and are subject to the $1.86 per pay period administrative fee. You must submit claims within 120 calendar days from the end of the plan year. These claims must be for expenses incurred during the plan year while you were still actively employed with the LADWP.
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Summary of Your LADWP FLEX Plan Responsibilities If you choose to enroll in the LADWP FLEX Plan, you will be responsible for the following:
Submitting claims for reimbursement to eflexgroup on a timely basis
Providing complete and correct information when filling out the claim forms
Carefully estimating the annual amount of money you want to contribute to the Health Care FSA and/or DCA so it will be equal to or less than your eligible expenses incurred during the plan year
Keeping copies of all claims and expense receipts with your tax records for seven years after the plan year ends
Submitting any qualifying status changes to the LADWP within 30 days of the status change
Reviewing and either changing or actively canceling your elections to the Health Care FSA and/or DCA during each annual Open Enrollment period based on your needs each year
Ensuring that your Pre-tax Premium Plan contributions correspond to your health and dental plan elections each year, and if not, reporting any errors to the Flex Plan Administrator immediately
Reviewing your paycheck stubs every pay period to make sure your Health Care FSA, DCA and/or Commuter deductions are correct, and if not, reporting the errors to the Plan Administrator immediately
Obtaining letters from your tax consultant as needed to verify the eligibility for reimbursement of expenses that are not clearly eligible
Notifying the LADWP FLEX Plan Administrator before you take a disability leave of absence, or immediately upon your return to active status.
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