1. Section 125 Flexible Benefit Plans
Benefit Solutions, Inc.*
11/16/201807/16/96
Section 125 Flexible Benefit Plans
Linda Meyerhoffer, CPA
Benefit Solutions, Inc.
Linda A. Meyerhoffer, CPA*

2. Flexible Benefit Plan
An annual program that allows employees to put aside money out of each paycheck pre-tax to pay for medical and dependent care expenses they would normally pay for out-of-pocket anyway.
NET EFFECT=MORE TAKE HOME PAY

3. What’s Are The Advantages?
To Employees:
Reduction of Federal, State & FICA Taxes
Opportunity to choose benefits they really want

4. What Are The Advantages?
To the Employer:
Matching FICA & FUTA Tax Savings
An inexpensive way to add another benefit
A way to increase employee pay without giving a raise
Higher employee awareness of benefit costs

5. Benefits Allowed
Health Related Insurance - Health, Dental, Vision, AD&D, STD & LTD, Group Term Life
Medical Reimbursement Account
Dependent Care Assistance Program
Private Health Premiums

6. Benefits That Can Not Be Offered
Qualified Scholarships
Educational Assistance Programs
Dependent Group Term Life Insurance
Medical Savings Accounts
Long-Term Care Insurance

7. What To Offer? POP Plan - Premium Only Typical Flexible Benefit Plan
Full Flexible Benefit Plan with Benefit Credits

8. Medical Reimbursement Account
Maximum and Minimum Annual Amounts are Determined by Company
Employees Can Use to Pay Medical Expenses not Covered By Insurance
Benefits Employees and their Dependents

9. How Does Medical Reimbursement Work?
Employee makes election before beginning of year
Employer takes same amount out of check pre-tax each payday
When services are provided, employee must submit reimbursement form along with proof services were received
Uniform Coverage Rule Required - Employee gets reimbursed from his account up to the amount of his election - regardless of whether he has enough money in his acct

10. What Medical Expenses Can be Reimbursed?
Doctor & Prescription Co-pays
Eye Care – Glasses, Contacts, Lasik
Dental Care – Check-ups, Crowns, Bridges, Dentures, Orthodontics
Anything medication you would normally take for a sickness or illness including OTC
Much More

11. How Does Dependent Care Reimbursement Work?
Employee makes election before beginning of year
Employer takes same amount out of check pre-tax each payday
When services are provided and paid, employee must submit reimbursement form along with proof services were received and paid
Employee gets reimbursed from his account up to the amount of money in his acct

12. Use-It or Loose-It Rule
New 2 ½ month Rule (Optional):
Allows employees to make purchases or receive medical or dependent care services 2 ½ months into next plan year (14 ½ months to receive services)
Will probably require extension of run-out period
Requires more work on administrator’s part
Provides more flexibility for employees

13. Use-It or Loose-It Rule
Ways to Compensate:
Take time to estimate accurately & be conservative
Periodic Reminder Letters
Re-enrollment Sessions
Include Balances on check stubs
24-hour Internet access

14. Disadvantages To the Employee:
Could reduce future Social Security Benefits
Does not reduce earned income for computation of the EIC

15. Disadvantages To the Employer:
Takes financial risk under the “uniform coverage rule”
Administration Fees
Discrimination testing must be done
Medical Reimbursement is a health plan and may have to be offered under COBRA

16. Setting Up A Plan
Plan Document - must be available upon request by DOL and a copy of Summary Plan Description must go to employees
Discrimination Testing
Form 5500, if required

17. Setting Up A Plan Plan Document -
POP or FSA? Additional document or attachment required for medical reimbursement and dependent care reimbursement
Must be formally adopted by Employer before beginning of plan year

18. Setting Up A Plan Plan Document Must Describe Eligibility
Class of Employee or # of Hours
Service Requirements
Plan Entry Date

19. Setting Up A Plan Plan Document Must Also Specify
What Benefits Can Be Elected
How the Plan is Funded
Maximum and Minimum Contribution Amt
Plan Year
Rules Governing Method, Timing, & Irrevocability of Elections

20. Who Can Not Participate?
Self-employed individuals
Partners in a partnership
A 2% or More Shareholder in a S Corp or their spouse, children, grandchildren or parents
Outside Directors, Limited Partners, and Members in LLC’s

21. Discrimination Testing
Who Is Highly Compensated?
An officer, or
a more than 5% owner this year or last (including their spouse, parents, children & grandchildren), or
Compensation in excess of $95,000, or
A spouse or dependent of any of the above.

22. Discrimination Testing
Who Is A Key Employee?
An officer - annual compensation exceeding $135,000 or
a greater 5% owner this year or last (including their spouse, parents, children & grandchildren), or
a greater than 1% owner w/ compensation greater than $150,000.

23. Discrimination Testing
Do Before the End of the Plan Year
25% Test - benefits provided to key employees can not exceed 25% of the aggregate of such benefits provided for all employees under the plan
55% Test - for dependent care only the average benefits provided to non-HCE’s must be at least 55% of the average benefits provided to HCE’s
Other Considerations: controlled groups, classes of employees,

24. Penalty is $25/day up to a maximum $15,000/return
IRS Form 5500
Must Be Completed and Submitted within 7 months after the end of the plan year if you have 100 or more participants in Medical Reimbursement
Penalty is $25/day up to a maximum $15,000/return

25. Keys To A Successful Plan
Consider an outside administrator
Set up plan to include classes of employees with low turnover – can restrict based on number of hours and have waiting pd
Set up plan that reimburses weekly
Communicate & educate employees
Support the plan in-house and encourage participation

26. Benefits of Using Outside Administrators
Limits administrative hassle – HIPAA
More privacy - encourages participation
Avoids lawsuits

27. Flexible Spending Accounts
Benefit Solutions, Inc.*
11/16/201807/16/96
Flexible Spending Accounts
A WIN-WIN SITUATION FOR EVERYONE
Linda A. Meyerhoffer, CPA*