TO SET UP A FLEXIBLE
SPENDING PLAN IN YOUR ORGANIZATION
Almost any organization will benefit from an IRC Section 125 Flexible
Spending Plan. Thousands and thousands of profit and non-profit companies
across America have set up their own Flexible Spending Plans, and you can
do it too!
The two biggest stumbling blocks organizations have in administering
their own plans are (1) not knowing how to set up a functioning, legal plan
for their company and (2) the time and expense involved in proper record
keeping. The information below will solve both of those problems for you.
To set up the FLEXIBLE SPENDING PLAN you need:
1. Cafeteria Plan Legal Documents. Contact your attorney
and have him/her draft both Flexible Spending Plan documents that meets
the requirements of Internal Revenue Code Section 125. You will need both
a Summary Plan Description and a Full Cafeteria Plan Legal Document. Below
is a sample Summary Plan Description (SPD) for your reference.
If you prefer, you can have an experienced law firm that specializes
in writing customized flexible spending plan documents that meet all IRS
and DOL guidelines prepare your plan documents for you. Please call (801)
222-9700 and ask for Steve Skabelund, JD, CPA. Your plan documents will
be quickly and professionally prepared for a small one-time fee.
2. Participant Enrollment. Below are both employer and
employee information packets that cover most frequently asked questions.
Employees should be provided with this information and encouraged to use
the tax-free benefits worksheet to estimate
their annual out-of-pocket medical and dependent care expenses. Our FAST-
FLEX PLUS software includes a Paycheck Evaluator that demonstrates the tax-saving
advantages of flexible spending plan participation to each employee. When
the employee's expense and salary information is entered into the software,
he is provided with a comparison of his take-home paycheck with and without
a flexible spending plan. This data is automatically retained in the employee
database for future program use. Company payroll tax savings are also calculated
at the click of a mouse after all employee data has been entered.
3. Fast-Flex Plus Software. Keeping a cafeteria benefit
plan's records manually could become very time consuming. Our software will
help you quickly show the tax advantages of a cafeteria plan to each individual
employee and will easily keep track of each individual employee's contributions,
withdrawals, and account balances. It will also print qualified expense
reimbursement checks. It can be downloaded free here.
4. Annual Report. The IRS requires the annual filing
of Form 5500 or 5500-C. Here is a link to describe
how easily non-discrimination testing and the form 5500 work with Fast-Flex
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FLEXIBLE BENEFITS PLAN
Note: Click here for this SPD template in MS Word that you can customize for your organization
SUMMARY PLAN DESCRIPTION (SPD)
TABLE OF CONTENTS
BENEFIT ELECTION AND CONSTRUCTIVE RECEIPT
NON-INSURED MEDICAL, DENTAL, ACCIDENT AND HEALTH
DEPENDENT CARE EXPENSES
PAYMENT OF NON-INSURED EXPENSES
PERIODIC STATEMENT OF EXPENSES REIMBURSED THROUGH
CHANGE OF BENEFITS
TERMINATION OF BENEFITS
OTHER FACTS YOU SHOULD KNOW
CLAIMS AND APPEALS
STATEMENT OF ERISA RIGHTS
Note: The following is a summary and is designed to help you understand
the provisions of a typical Cafeteria Plan. It is not a Full Cafeteria Plan
Document. However, a Full Cafeteria Plan Document template, that may be loaded into
any word processor and modified to meet your needs, can be purchased from
our secure server.
The Department of Labor has issued rather complicated regulations concerning
this Summary Plan Description. We have tried to comply with its requirements
and still provide you with a document that is easy to read and understand.
We realize that this is a rather lengthy document, but we hope you will
take the time to read it.
All decisions regarding your participation, benefits and rights must be
based on the provisions as stated in the actual Plan document. You are urged
to consult with your Plan Representative if any part of this Summary Plan
Description is not clear or if you have additional questions.
This Plan offers choice to a participant between taxable compensation
(cash), and statutory non-taxable benefits (tax-free and taxable fringe
benefits). Total compensation may be adjusted by the value of cash and other
tax free benefits received.
There is an Administrative Committee to handle such functions as:
1. Interpreting the provisions of the Plan.
2. Submitting reports to the Internal Revenue Service and the Department
3. Advising the Participants of their interest and benefits in the Plan.
4. Keeping all the records and establishing the policy for the Flexible
This Committee is appointed by the Board of Directors of the Corporation,
and all members serve without pay. The Administrative Committee is also
designated as agent for the service of legal process on behalf of the Plan.
Through the COMPANY, Flexible Benefits Plan, you can request a salary
reduction from your paycheck on a pre-tax basis, in an amount equal to your
group and/or individual medical, life and dental premiums, plus an amount
you predetermine will be needed to cover your costs of non-reimbursed non-insured
medical, dental, accident and health expenses for yourself and/or your dependents.
Furthermore, if you are paying for dependent care which is deductible
under IRS regulations, you can have deducted an amount equal to your expenses
on a pre-tax basis and reimbursed as a non-taxable benefit.
Having these expenses deducted from your paycheck as pre-tax deductions
and reimbursed to you for payment of those expenses, under the term of the
Plan, will decrease your tax liability.
A person who is a full-time employee with the Corporation is eligible
to participate in the Plan.
Employees hired on or after the effective date will become eligible for
participation on the first of the month after meeting the eligibility requirements
and upon completion of the necessary enrollment forms. Employees who do
not become participants on the effective date of their eligibility will
not become eligible for participation in the Plan until the next enrollment
of participants occur.
Your Flexible Benefits Plan may be used to pay for expenses incurred
by you or your eligible dependents which fall into the following categories:
1. Expenses you or your spouse pay as your share of medical, dental,
accident and health costs, such as:
(a) Premiums for medical, accident and health coverage under the Corporation
(b) Plan deductibles.
(c) Co-payments through the Corporation Medical Plan.
(d) Any salary deduction amounts not used by you during the Plan Year will
be forfeited at the Plan Year end.
2. Expenses that are not covered by our medical, dental, accident and
health plans, but which the IRS has historically considered deductible for
income tax purposes. These would include:
(a) Amounts over reasonable and customary charges.
(b) Amounts above insurance plan dollar limits
(c) Expenses not covered under a medical plan.
(d) Cosmetic surgery if to correct congenital defect, disfigurement from
an accident or result of a disease.
(e) Eye glasses and hearing aids.
(f) Non-reimbursed dental expenses.
(g) Any salary reduction amounts not used by you during the Plan Year will
be forfeited at the Plan Year end.
3. Expenses in connection with dependent care. Eligible dependents include
your spouse and "dependents" as defined under the COMPANY, Flexible
Benefits Plan. Any salary reduction amounts not used by you during the Plan
Year will be forfeited at the Plan Year end.
Participants can forego a pay increase, bonus, or reduce their present
compensation for medical, dental, accident and health care, dependent care,
conversion from employee paid to employer paid insurance premiums, on the
Corporation Medical Plan.
BENEFIT ELECTION AND CONSTRUCTIVE RECEIPT
In order for the Flexible Benefits Plan to quality for protection under
Section 125 of the Tax Code, the following rules must be followed:
1. Benefit Election. Prior to the effective date or date of actual participation
or re- enrollment for subsequent Plan Years, each Participant in the Plan
must enter into an Employee Payroll Reduction Agreement and "elect"
(choose) which taxable or non-taxable benefits of the Plan they will participate
in and the amount of salary reductions for each pay period during the following
Once the election has been made and payments into the Plan have been
started, they cannot be "revoked" (stopped) or changed at any
time during the Plan year, with one exception:
A Participant may revoke a benefit election after the coverage or Plan
Year has commenced and make a new election for the remainder of the Plan
Year if both the revocation and new election are on account of and consistent
with a change in family status, e.g. marriage, divorce, death of a spouse
or child, birth or adoption of a child, and termination of employment of
2. Constructive Receipt. When a Participant elects to have a certain
amount of his compensation calculated before taxes and authorizes an employer
to utilize these monies to pay for non-insured medical, dental, accident
and health expenses that are considered non-taxable under IRS rules, the
amount reimbursed for that Plan year must be used to pay for medical, dental,
accident and health care expenses incurred in that year. There can be no
excess reimbursements. An excess reimbursement is an amount in excess of
actual expenses incurred. Therefore, it is important that the Participant
only reduces his/her salary in an amount equal to determinable non-insured
medical, dental, accident and health expenses.
NON-INSURED MEDICAL, DENTAL, ACCIDENT AND
Any expense incurred as a result of participation in the Corporation's
Medical, Dental, Accident and Health Plan can be reimbursed to the employee
on a tax-free basis, provided that Participant has a reasonable belief the
expenses would have been deducted if filing for a Medical Expense deduction
on their Federal Income Tax Return.
You should note that these medical expenses do not have to exceed the
IRS "Deductible Threshold" for deductibility in order to be eligible
for non-taxable reimbursement under the COMPANY, Flexible Benefits Plan.
DEPENDENT CARE EXPENSE
The Flexible Benefits Plan allows Participants to receive non-taxable
reimbursements for dependent care for eligible children or other dependents,
provided they can be claimed as a dependent on their tax return.
The Plan will cover expenses for:
1. Babysitters, or companion, and
2. An eligible Day Care Center (to be eligible, a Day Care Center must meet
local and state regulations, provide care for more than six (6) non-resident
people and receive a fee for such services, whether or not for profit.)
Dependent Care expenses are covered if:
1. The dependent is under age 15, or
2. The dependent, regardless of age is physically or mentally incapable
of self-care (an incapacitated dependent who is over the age of 15 must
regularly spend at least eight (8) hours a day in the participant's household).
Reimbursement will be limited to employment-related expenses as defined
by the Internal Revenue Code -- that is, expenses which must be incurred
to enable you or your spouse to remain gainfully employed.
If you are married certain limitations apply, such as:
1. Reimbursement will not be made for dependent day care expenses which
exceed the lesser of the Participants' earned income or the income of their
2. Both the Participant and spouse (unless a full-time student or disabled)
must work to be eligible for reimbursement under the Plan.
Following are some examples of these earnings limitations:
1. If the Participant is married and earns $12,000 and their spouse earns
$4,500, the Plan can only reimburse dependent care expenses up to the amount
in the Participant's account or $4,500 whichever is the lesser amount.
2. If the Participant is married and earns $12,000 and their non-working
spouse has no earned income, the Plan cannot reimburse any dependent care
expenses except as described below:
If the spouse is a full-time student, or is physically or mentally incapable
of self- care, the spouse is deemed to have earned income of $200.00 per
month (if expense apply to one dependent), or $400.00 per month (if two
of more dependents).
The plan can reimburse any Participant for dependent care expense, up
to Five Thousand Dollars ($5,000), if married; and Two Thousand Five Hundred
Dollars ($2,500), in the case of a married individual filing a separate
Payments to related individuals. Reimbursement cannot be made through
the Plan for dependent care expenses paid to:
1. An individual who could be claimed as a dependent on their tax return
(or the return of the spouse), or
2. Your child (or stepchild) who is under age 19 at the end of the tax year.
A Participant who reduces compensation in order to receive non-taxable
reimbursements for dependent care may not claim the dependent care expenses
for the purpose of taking advantage of the dependent care credit on the
Participant's individual tax return. Therefore a Participant should determine
whether the non-taxable reimbursements or dependent care credit is more
beneficial in his or her particular situation.
PAYMENT OF NON-INSURED MEDICAL, DENTAL,
ACCIDENT, HEALTH AND/OR DEPENDENT CARE EXPENSES
Any Employee who becomes a participant and enters into an Employee Payroll
Reduction Agreement to reduce his or her compensation will receive a non-taxable
reimbursement for non- insured medical, dental, accident, health and/or
dependent care expenses. The total amount of salary reduction for the year
will be divided by the number of pay periods. This money shall be returned
to the Participant as reimbursement vouchers are submitted to the Corporation.
To the extent salary reduction exceeds legitimate reimbursement under the
Flexible Benefits Plan such excess shall be forfeited by the Participant.
There are certain expenses which are not allowable under the Flexible
Benefits Plan. These include:
1. Expenses incurred before the Plan Year or date of employment, if later;
2. Expenses claimed as a deduction or tax credit for income tax purposes;
3. Medical, dental, accident and health expenses which have been reimbursed
through any Medical Benefit policy or Plan; and
4. Expenses which have been reimbursed through Medicare or any other
Federal or State program.
5. Expenses not allowable for dependent care as outlined under Dependent
Care Expense of this Plan Summary.
PERIODIC STATEMENT OF EXPENSE REIMBURSED THROUGH
You will receive a periodic statement showing how much has been reimbursed
through the Flexible Benefits Plan. This will enable you to determine:
1. Whether you are entitled to an income deduction or tax deduction or
credit for reimbursed medical or dependent care expenses.
2. If your Plan reimbursement for dependent care expense exceeded the
limitations described on page 3.
CHANGE OF BENEFITS
The salary reduction agreement and benefit allocation executed by you
is binding for the Plan Year. You may not make any changes in this salary
reduction and benefit allocation agreement during the current period except
in the occurrence of a change in family status. If you believe you may have
a change of family status, contact your plan representative.
TERMINATION OF BENEFITS
Eligible Employees may participate in the COMPANY, Flexible Benefits
Plan as long as they are in employment status. If an individual is a qualified
beneficiary continuation in the plan may also be possible. A qualified beneficiary
is an individual who on the day before the qualifying event for a covered
employee is a beneficiary under a group health plan either as the spouse
or the dependent child of a covered employee. The covered employee may also
be a qualified beneficiary if his coverage under the plan ends because of
termination or reduction of hours of employment.
A Participant may elect to continue participation if loss of eligibility
to participate stems from any of the following qualifying events:
Participant's death, termination (other than by reason of gross misconduct),
reduction of hours or Participant becomes entitled to medicare benefits;
In the case of Participant's spouse in the event of divorce or legal separation
from Participant; and
In the case of Participant's dependent child in the event the child ceases
to be a dependent child under the plan.
Satisfying coverage requirement. The plan provides for coverage identical
to that being provided to similarly situated beneficiaries who are covered
under the health plan. The coverage must extend for at least the period
beginning on the date of the qualifying event and ending no earlier than
the earliest of the following:
(1) 18 months after the covered employee's termination or reduced hours,
if that is the qualifying event, or in the case of any other qualifying
event, the date which is 36 months after the date of the qualifying event.
(2) The date on which the employer ceases to provide any group health plan
to any employee or that coverage ceases because premiums were not paid with
respect to the qualified beneficiary;
(3) The date the qualified beneficiary becomes eligible for coverage under
another group health plan or becomes entitled to medicare benefits; or
(4) In case of spouse who is a qualified beneficiary of a covered employee,
the date he or she remarries and becomes covered under another group health
plan. Where continuation coverage expires under the 18-36-month rule in
(1) above, the plan, during the 180-day period ending on such expiration
date, provide the qualified beneficiary the same enrollment option under
a conversion health plan that is generally available under the plan.
The plan provides that the continuation coverage election can be made
during a period of at least 60 days duration which begins no later than
the date on which coverage terminates under the plan by reason of a qualifying
event, and doesn't end earlier than the later of 60 days thereafter, or,
60 days after the qualified beneficiary receives notice from the plan administrator.
The plan requires payment of a premium for any period of continuation
coverage provided that it does not exceed 102 percent of the "applicable
premium" for such period, and that, at the election of the payor, it
may be made in monthly installments. If an election is made after the qualifying
event, the plan permits payment for continuation coverage during the period
preceding the election to be made within 45 days of the date of the election.
The continuation coverage may not be conditioned on, or discriminate
on the basis of lack of, evidence of insurability.
Applicable Premium. The "applicable premium" is the cost of
the plan of the period of continuation coverage for similarly situated beneficiaries
covered by the plan, with respect to whom a qualifying event has not occurred,
without regard as to whether its cost is paid by the employer or employee.
In the case of a self-insured plan, the applicable premium is equal to
a reasonable estimate of the cost of providing coverage for similarly situated
beneficiaries which is determined on an actuarial basis, and takes into
account such factors as may be set forth in regulations.
If a plan administrator elects to have the following rule apply, the
applicable premium is an amount equal to the cost to the plan for similarly
situated beneficiaries for the same period occurring during the preceding
12 months (the "determination period"), adjusted by the percentage
increase or decrease in the implicit price deflator of the gross national
product (calculated by the Department of Commerce and published in the Survey
of Current Business) for the 12-month period ending on the last day of the
sixth month of such preceding determination period.
But a plan administrator may not elect this "past cost" rule
if there is any significant difference, between the determination period
and the preceding determination period, in coverage under, or in employees
covered by, the plan.
Notice requirements. Each covered employee of the group health plan,
and his or her spouse, shall receive written notice of the rights provided
under Code Section 162(k) from the plan, at the time of commencement of
coverage under the plan. Where the hours of employment, or the fact that
he has become entitled to medicare benefits, the employer must notify the
plan administrator of the qualifying event within 30 days of that event.
The employee or his qualified beneficiary must notify the plan administrator
where the spouse, or cessation of dependency status under the plan in case
of a child. The administrator must then, within 14 days, give notice to
the beneficiary of his rights under the plan.
Applicability of Section 11.2. Section 11.2, of the Flexible Benefits
Plan Document which is on file with the Corporation Representative, shall
not apply to this plan unless such application is mandated under state or
federal law and, in such event, it shall not apply for any calendar year
if the Corporation and all related employers normally employ, in the aggregate,
fewer than 20 employees on a typical business day during the preceding calendar
OTHER FACTS YOU SHOULD KNOW
1. Expenses reimbursed from the Plan cannot be claimed as deductions or
credit on your tax return.
2. Participation in the Plan will not affect your other Corporation benefits.
They will continue to be based on your total earnings without regard to
any salary reduction under the Flexible Benefits Plan.
3. The Flexible Benefits Plan is based on the Corporation's understanding
of current provisions of the Internal Revenue Code. The Corporation reserves
the right to amend or discontinue the Plan if regulations or changes in
the Revenue Code make it advisable to do so.
4. The plan's official name is the COMPANY, Flexible Benefits Plan.
5. Certain day to day administrative tasks may have been delegated to
other qualified companies or individuals.
6. When you are communicating about the plan, there is certain identifying
information you should know:
Plan Administrator/Corporation: COMPANY, (Employer I.D._______________)
Plan Number: 501
Plan records are kept on a plan year basis beginning January 1st and ending
7. While the Corporation does intend to continue this plan for the foreseeable
future, the Corporation does have the right to terminate it.
8. This booklet is based on the official legal documents that establish
the plan. If there is any conflict between the information in this booklet
and that in the official legal documents, the legal documents will govern.
Falsification of any document or information in which reimbursement is
being made will be considered sufficient reason for permanent forfeiture
of eligibility for participation in the Plan.
CLAIMS AND APPEALS
If you or a beneficiary feel that you are entitled to certain benefits
under the Plan which you have not received, you may made a claim under the
Plan to do this. You should file a written claim with the Administrative
Committee. The Committee will then investigate your claim within ninety
(90) days after you file it. All reasons for its decision will be listed.
If the claim is denied, or if it is not acted on within ninety (90) days,
the applicant has ninety (90) days in which to appeal the denial to the
Board of Directors for review. The Board of Directors then has ninety (90)
days to review the claim and to provide a decision in writing.
STATEMENT OF ERISA RIGHTS
As a Participant in the Corporation Flexible Benefits Plan you are entitled
to certain rights and protections under the Employee Retirement Income Security
Act of 1974 (ERISA). ERISA provides that all Plan Participants shall be
1. Examine without charge, at the office of the Corporation and at other
specified locations, all Plan documents, including insurance contracts or
other important documents required to be filed by the Plan with the U.S.
Department of Labor; and
2. Obtain copies of all Plan documents and other Plan information upon
written request to the Administrative Committee. (The Committee may make
reasonable charges for the copies); and
3. Receive a summary of the Plan's Annual Financial Report. The Corporation
is required by law to furnish each Participant with a copy of this summary
In addition to creating rights for Plan Participants, ERISA imposes duties
upon the people who are responsible for the operation of employee benefits
plans. The people who operate your Plan, called "Fiduciaries"
of the Plan, have the duty to do so prudently and in the interest of you
and other Plan Participants and beneficiaries. No one, including your employer,
your union, or any other person, may fire you or otherwise discriminate
against you in any way to prevent you from obtaining a benefit or exercising
your rights under ERISA.
If your claim for a benefit is denied in whole or in part, you must receive
a written explanation of the reasons for denial. You have the right to have
your claim reviewed and reconsidered.
Under ERISA there are steps you can take to enforce the above rights.
For instance, if you request materials from the Administrative Committee
and do not receive them within thirty (30) days, or were denied benefits,
you may file suit in a Federal Court. If the Court were to decide in your
favor, it may require the Administrative Committee to provide you the materials.
The Court may also assess a penalty of $100 a day until you receive the
required data, unless the material was not sent because of reasons beyond
the control of the Corporation.
If it should happen that Plan Fiduciaries misuse the Plan's money or
if you are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file suit in a
Federal Court. The Court will decide who should pay the court costs and
legal fees. If you are successful, the Court may order the person you have
sued to pay these costs and fees.
It is required that these rights be explained to you, but it is important
for you to know that if you were to file a false claim for benefits or a
frivolous suit, the Court could order you to pay the costs and fees. While
these rules are meant to protect your benefits, you should not abuse their
If you have any questions about your Plan, you should contact the Administrative
Committee. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest area office of the U.S.
Labor-Management Services Administration, Department of Labor.
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WHAT IS A CAFETERIA PLAN?
A Cafeteria Plan is a written plan under which all participants can chose
between two or more benefits consisting of cash and statutory nontaxable
"Statutory Nontaxable Benefits" include only those benefits
excludable from gross income by reason of an express provision of the Internal
Revenue Code (other than Sections 117, 124, 127, or 132). Group term life
insurance in excess of $50,000 and vacation days may also be included under
certain conditions. Under Section 125(d)(2), a cafeteria plan may not provide
for deferred compensation (although it may include a qualified cash or deferred
arrangement described in Sec 401(k)).
The operative provision in SEC. 125 is Sec. 125(a), under which nontaxable
benefits elected by a cafeteria plan participant will not be taxable solely
because the participant could have elected cash (or taxable group term life
TAXABLE BENEFITS: Cash
1. Group term life insurance. (Sec. 79)
2. Health insurance. (Sec. 106)
3. Medical Expense Reimbursement. (Sec. 105)
4. Group Legal Services. (Sec. 120)
5. Dependent care Assistance. (Sec. 129)
6. Section 401(k) participation (Sec. 401(k)).
7. Vacation Time (Tax Reform Act of 1984)
HOW MUCH YOUR COMPANY CAN SAVE?
Employers will save the employer-matching portion of FICA taxes for every
dollar that employees reduce their salaries, asumming that the employees
are below the FICA salary maximums. Additional tax savings may be realized
by the Employer as the result of reduced unemployment and workman's compensation
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A. Summary Plan Description (SPD)
The Department of Labor (DOL) requires that each organization which adopts
a Cafeteria Plan prepare a Summary Plan Description upon adoption of that
Cafeteria Plan. A copy of the Summary Plan Description should be given to
each participant in the Cafeteria Plan and must be furnished to the DOL
B. Annual Return
Section 6039D(a) requires each employer maintaining a Sec. 125 cafeteria
plan during any year that begins after December 31, 1984 to file a return
for the year with respect to the plan. The annual return is to be filed
on IRS Form 5500-C. This form is due seven (7) months after the end of the
The annual return is to include the following information;
(1) the number of employees of the employer,
(2) the number of employees of the employer eligible to participate under
(3) the number of employees participating under the plan,
(4) the total cost of the plan during the year, and
(5) the name, address, and taxpayer identification number of the employer
and the type of business in which the employer is engaged.
C. Penalties for Failure to File
Under Sec. 6652(f) the failure of an employer to file the annual return
required by Sec. 6039D(a) or any additional return required by the Secretary
of the Treasury under Sec. 6039D(c) on the date in the manner prescribed
shall result in a penalty of $25 per day up to a maximum of $15,000 per
return, unless the failure to file is shown to be due to reasonable cause.
D. Record keeping Requirement
Section 6039D(b) requires each employer maintaining a cafeteria plan
to keep such records for each year as may be necessary to determine whether
the requirements of Sec. 125 are satisfied.
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THE MOST FREQUENTLY ASKED QUESTIONS ABOUT CAFETERIA PLANS:
1. WHAT IS A CAFETERIA PLAN?
A Cafeteria Plan gives you, the employee, a chance to save a considerable
amount of money in taxes. You can do this by paying certain qualified expenses
(non-taxable benefits) out of your before-tax income which reduces the amount
of salary that is taxed.
2. WHAT NON-TAXABLE BENEFITS ARE ALLOWABLE IN A CAFETERIA PLAN?
a) Your portion of health, medical or disability insurance.
b) Any out-of-pocket medical expenses you must pay, (deductibles, things
not covered by your insurance)
c) Dependent care costs.
d) Group life insurance costs
3. MAY MY CHILDREN AND SPOUSE BE COVERED UNDER THE CAFETERIA PLAN?
Yes, anyone who qualifies as your dependent on your tax return is covered
under the Cafeteria Plan. For example, all your dependent's medical costs
(including any medical or health insurance premium paid by your spouse at
his/her place of employment can be paid (i.e. reimbursed) under the Cafeteria
4. WHY SHOULD I PARTICIPATE IN THE CAFETERIA PLAN?
You will get significant tax savings, not only in the form of federal
and state income taxes, but also the 7.65% FICA (Social Security) tax savings.
An individual in the 35% federal and state income tax bracket, who elects
non-taxable benefits under the plan of $2,000, would realize a $853.00 tax
savings per year!
5. ARE THERE ANY OTHER REASONS I SHOULD PARTICIPATE IN THE CAFETERIA
A Cafeteria Plan is unique because it allows you to design your own fringe
benefit program. Because of this and also because of the tax savings realized,
Cafeteria Plans are in high demand by employees in all types of companies.
6. HOW DO I MAKE THIS ELECTION?
You will make your choice as to what non-taxable benefits you desire
through the means of a Salary Reduction Agreement. Assume you elect to have
all medical costs, your portion of the company's health insurance premium
and your dependent care costs paid by the Cafeteria Plan. You estimate these
costs to be $1,800 for the year, or $150 per month. You then "reduce"
your salary (for tax computations only) by $150 per month and have that
$150 placed in a special trust in your name. From that trust account the
company will then pay your portion of the health insurance premium. The
remainder will be reimbursed to you to pay your medical and dependent care
costs. You pay no income or FICA tax on the $150 per month you run through
the flexible spending plan.
7. WHAT DO I NEED TO DO TO GET MONEY REIMBURSED TO ME?
You simply have to submit a reimbursement form. The form is forwarded
to the Administrator, who then forwards you a check.
8. WHEN IS THIS ELECTION MADE?
The election is made prior to the beginning of the year. This election
is made on a salary reduction agreement.
9. MAY I CHANGE MY ELECTION DURING THE YEAR?
Yes, but only under certain circumstances. The IRS regulations only allow
an employee to changes his/her election if there is a change in "family
status". For example, in case of marriage, divorce, death of spouse
or child. birth or adoption of child, and termination of employment of spouse.
10. AM I KEPT UPDATED ON HOW MUCH IS IN MY ACCOUNT?
Yes, on either a monthly or quarterly basis you will receive an updated
report on how much has been placed in each of your accounts, how much you
have spent and what your balance is.
11. WHAT HAPPENS IF I DON'T USE ALL THE MONEY IN MY ACCOUNT?
The IRS rules require you to "use it or lose it." It is imperative
therefore, that you do not put more money into your account than what you
will use. Helpful ideas are to prepay medical, insurance and dependent care
expenses if your account has more money in it than you can report on your
12. WHAT HAPPENS IF I TERMINATE MY EMPLOYMENT BEFORE THE END OF THE YEAR?
You can still request the money in your account before the end of the
year by turning in expense reimbursement forms.
13. QUALIFYING MEDICAL CARE EXPENSES
Under the Plan, you will be reimbursed only for those types of medical
expenses normally deductible on your federal income tax return (without
regard to the 7.5% of adjusted gross income limitation). They include, for
example, expenses you have incurred for:
--Medicine, drugs, birth control pills, vaccines, and vitamins your doctor
told you to take.
--Medical doctors, dentists, eye doctors, chiropractors, osteopaths,
podiatrists, psychiatrists, psychologists, physical therapists, acupuncturists
and psychoanalysts (medical care only).
--Medical examination, X-ray and laboratory service, insulin treatment,
and whirlpool baths and doctor ordered.
--Nursing help. If you pay someone to do both nursing and housework,
you can be reimbursed only for the cost of the nursing help.
--Hospital care (including meals and lodging), clinic costs, lab fees.
--Medical treatment at a center for drug addicts or alcoholics.
--Medical aids such as hearing aids (and batteries), false teeth, eyeglasses,
contact lenses, braces, orthopedic shoes, crutches, wheelchairs, guide dogs
and the cost of maintaining them.
--Ambulance service and other travel costs to get medical care. If you
used your own car, you can claim what you spend for gas and oil to go to
and from the place you received the care; or amount you claim under either
EMPLOYEE GUIDE FOR TAX-FREE
This guide is to help you determine the monthly contribution you should
make to your Flexible Benefit Program.
Keep in mind your Flexible Benefit Program has been designed so you can
put away TAX FREE MONEY into an INDIVIDUAL BENEFIT ACCOUNT TRUST FUND. This
will reimburse medical and other health related expenses that are not covered
by your group dental and health insurance program.
Think back over the last year about all the health and insurance related
expenses for yourself, your spouse, your children and other dependents that
your group health and dental insurance DID NOT pay, then list ALL these
The term "Medical Expense" means amounts incurred for the diagnosis,
cure, mitigation, treatment or prevention of disease for the purpose of
affecting any structure or function of the body. Such term is expressly
intended to include, but without limitation by way of inclusion, expenses
incurred for psychiatric care and for the eyes and teeth.
HEALTH RELATED BENEFITS
I. MEDICAL EXPENSES
- Deductibles $
- Co-insurance $
- Physical exams $
- Eyeglasses/contacts $
- Cosmetic surgery $
- Alcohol Treatment $
- Weight Control $
- Convalescent Care $
- Hearing needs $
- Artificial Aids $
- Special Equipment $
- Chiropractic Cure $
- Prescription Drugs $
- Psychiatric Care $
- Medical mileage $
- Physical Therapy $
- Birth Controls $
- Dental Care $
- Vision Care $
II. GROUP ACCIDENT, HEALTH & HOSPITALIZATION PREMIUMS $
NON HEALTH RELATED BENEFITS
III. DEPENDENT CARE
IV. INSURANCE PREMIUMS
- Cancer/dread disease insurance $
- Disability Insurance premiums $
- Term Life Insurance premiums $
V. RETIREMENT (401(k) or 403(b)) $
I. Medical Expenses $
II. Group Ins Premium $
III. Dependent Care $
IV. Insurance Premium $
V. Retirement $
TOTAL ANNUAL COSTS $
Divided by 12/months = $
FLEXIBLE BENEFIT PROGRAM
SALARY REDUCTION AGREEMENT
THIS AGREEMENT MADE AS OF _____________, 20___ , between _________________________,
hereinafter called EMPLOYER, AND ____________________________, hereinafter
Whereas, employee wishes to obtain the benefits of IRC Sections 105,
106, 125, 129, and other sections as amended, that provide benefits; and
Whereas, employer is willing to assist employee in obtaining said benefits.
Now, therefore, it is mutually agreed as follows:
SECTION 1: Employee's cash compensation per pay period shall be reduced
$_________________________ effective with a pay period beginning on or
SECTION 2: Employer will apply the amount by which cash compensation
is reduced to provide benefits as selected below by employee. Employee will
provide information required to obtain selected insurance plans.
EMPLOYEE SIGNATURE _________________________________________________
DESCRIPTION OF BENEFITS CASH ALLOCATION
GROUP INSURANCE PREMIUM $
DEPENDENT/CHILD CARE EXPENSES $
MEDICAL EXPENSES $
SECTION 401(k) PLAN $
GROUP TERM LIFE INSURANCE $
SECTION 3: If Employee's employment is terminated, this agreement will
terminate. Further, this agreement may be terminated in its entirety, and
only in its entirety, by employee on thirty days written notice to employer;
however, it may be revoked or amended by a writing signed by both parties
EMPLOYEE'S SIGNATURE ________________________________
EMPLOYEE'S SOC. SEC.# ____________________________
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SAMPLE REIMBURSEMENT FORM
Social Security Number: __________________________________
|Expense Type 1/
||Provider of Service
||Date of Service
||Reimbursement Requested 2/|
1/ (M)edical, (D)ependent Care, (O)rthodontia, (V)ision , (H)earing
2/ For each of the amounts listed above, have you included an Explanation
of Benefits or a statement from each provider showing reimbursement by your
medical or dental plan?