Flexible Spending Accounts
and Their Benefits for Employees
An Employee Communication Presentation
Introduction
Many employers offer benefits such as Flexible Spending
Accounts (FSAs) to their employees. FSAs are designed to
reimburse for incurred out-of-pocket medical and dependent
care expenses that are not reimbursable through any other
benefit. This presentation is designed to inform you of how our
FSA plan works.
Note to Presenter:
This sample presentation is intended for presentation to all
employees. It is designed to be presented by an individual who
has knowledge of the employer’s FSA plan and other benefits
programs. It is a sample presentation that must be customized
to match the employer’s own Flexible Spending Account plan.
©SHRM 2008
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Agenda
The agenda for our meeting today is:
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What is an FSA plan?
How does it work?
What are the advantages and disadvantages of enrolling?
When and how to enroll in our FSA plan
Minimum or maximum you can contribute
Reimbursement for eligible expenses
What is a reimbursable expense?
What is not a reimbursable expense?
Making changes to your FSA plan elections
How FMLA leave or end of employment affect your FSA plan
participation
Tips for making FSA elections
©SHRM 2008
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What Is an FSA Plan?
What Is a Flexible Spending Account (FSA) Plan?
An FSA plan is a type of benefit plan under Section 125 of the
IRS code that allows you to set aside money on a pre-tax basis
to pay for certain medical and/or dependent care expenses that
you and your eligible dependents incur. These expenses are
usually not covered at all or are only partially covered by
insurance. The FSA plan allows you to pay for the balance(s)
with pre-tax dollars.
©SHRM 2008
What Is an FSA Plan? (cont’d)
There are two types of FSAs
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Health Care FSA
>
•
This FSA is for health care expenses not paid by insurance,
including co-payments, exams, deductibles, vision care and dental
expenses.
Dependent Care FSA
>
This FSA is for dependent care expenses you incur to care for your
eligible dependents, including daycare, afterschool care or elder
care.
©SHRM 2008
What Is an FSA Plan? (cont’d)
Who is a “qualifying dependent” under the dependent care
account?
The dependent must be:
• A child under age 13 who can be claimed as your dependent on
your federal income tax return; or
• Your spouse, if he or she is physically or mentally incapable of
caring for himself or herself and has the same principal
residence as you for more than one-half of the year; or
• Any other person who can be claimed as a dependent on your
federal income tax return (without regard to the gross income
limitation), if he or she is physically or mentally incapable of
caring for himself or herself and has the same principal
residence as you for more than one-half of the year.
©SHRM 2008
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How Does an FSA Plan Work?
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FSAs are funded through your voluntary pre-tax salary
reductions.
In late fall during open enrollment, you will receive information
and an FSA Plan enrollment form. Prior to December 1, you
must make a decision whether to enroll, and if you decide to
enroll, state the type of plan(s) you are enrolling in and how
much you will contribute to each for the plan year.
This amount is divided equally by the number of pay periods and
subsequently deducted from the paycheck each pay period on a
pre-tax basis.
> NOTE: Once you make this election, you cannot change it until
open enrollment, except in special circumstances known as
“qualifying life events,” which we will cover later.
>
©SHRM 2008
How Does an FSA Plan Work? (cont’d)
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When you incur expenses, you submit for reimbursement to
receive your funds.
You must be able to substantiate the claim with written proof
(receipts) of the expense.
You will only be reimbursed for qualified expenses incurred
during the plan year’s 12-month period of coverage.
Expenses are incurred only after the service has been provided,
not when you are formally billed or when payment is made.
You will not be reimbursed in advance for services not yet
rendered.
You will receive your reimbursement check directly in the mail
from our FSA plan administrator.
Note to Presenter: You will need to revise portions of this slide if you use a debit-card
style FSA reimbursement process.
©SHRM 2008
Questions? Comments?
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Advantages and Disadvantages of Enrolling
Advantages
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Significant tax savings
> Contributions you make to an FSA plan are exempt from
federal, state, Social Security and Medicare taxes.
•
Cost savings
> Because of the tax savings, expenses for which you are
reimbursed cost you less than if you paid for them with
after-tax income.
©SHRM 2008
Advantages and Disadvantages of Enrolling
(cont’d)
This following example is based on an annual salary of $36K and
represents $100 additional take-home pay a month.
Without the FSA
Gross Earnings
With the FSA
$1,500
Taxable Income
Payroll Taxes
$1,500
-$375
Net Income
$1,125
Medical Expenses
-$200
Day Care Expenses
-$200
TAKE HOME PAY
$725
Gross Earnings
$1,500
Medical Expenses
-$200
Day Care Expenses
-$200
Taxable Income
Payroll Taxes
$1,100
-$275
$825
TAKE HOME PAY
$825
(Payroll taxes calculated to assume a 25% payroll tax rate, which encompasses federal and state
taxes, Social Security and Medicare.)
©SHRM 2008
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Advantages and Disadvantages of Enrolling
(cont’d)
This following example is based on an annual salary of $120K and
represents $140 additional take-home pay a month.
Without the FSA
Gross Earnings
Taxable Income
Payroll Taxes
Net Income
With the FSA
$5,000
$5,000
-$1,750
-$200
Day Care Expenses
-$200
$2,850
$5,000
Medical Expenses
-$200
Day Care Expenses
-$200
Taxable Income
Payroll Taxes
$3,250
Medical Expenses
TAKE HOME PAY
Gross Earnings
$4,600
-$1,610
$2,990
TAKE HOME PAY
$2,990
(Payroll taxes calculated to assume a 35% payroll tax rate which encompasses federal and state
taxes, Social Security and Medicare.)
©SHRM 2008
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Advantages and Disadvantages of Enrolling
(cont’d)
Disadvantages
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Use-it-or-lose-it rule
> You may not carry over unused funds from one plan year to
another.
Paperwork
> You must initiate the reimbursement process by collecting
receipts and completing reimbursement request forms.
> You must keep all receipts and records to substantiate
expenses.
©SHRM 2008
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Questions? Comments?
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When and How to Enroll
When do I enroll in our FSA plan?
• Upon Hire
>
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New hires have 30 days to enroll upon eligibility.
Open Enrollment
>
You may enroll during open enrollment for the next plan year.
How do I enroll?
• You enroll by completing the FSA Election Form in your NewHire Packet or Open Enrollment Packet.
(Note to presenter: You will need to revise this slide if you use a web-based self-service enrollment
tool.)
©SHRM 2008
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Maximum/Minimum Contributions
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What is the maximum I can contribute to my FSAs?
>
Health Care FSA
• The health care account maximum is <insert annual maximum here>.
>
Dependent Care FSA
• The dependent care account maximum is $2,500 per year if single or
$5,000 per year if married. (If you are married but file your income taxes
separately, then the maximum is $2,500 per year.)
•
What is the minimum I can contribute to my FSAs?
>
Health Care FSA
• The health care account minimum is <insert annual minimum here>.
>
Dependent Care FSA
• The dependent care account minimum is <insert annual minimum
here>.
©SHRM 2008
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Reimbursement for Eligible Expenses
•
How are you reimbursed?
>
You complete an FSA expense claim form and submit receipts
directly to <enter FSA Administrator name here>. <Administrator>
will process your claims within 24 business hours of receiving your
request and send you a check by U.S. mail or, at your request,
process a direct deposit to your bank account. This process usually
takes 7-10 business days.
Mail claim forms to:
<Insert Address Here>
>
You may obtain claim forms from the HR department .
Note to Presenter: You will need to change this slide if you use a debit-card style
reimbursement process or if forms can be found on your administrator’s web
site.
©SHRM 2008
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What Is a Reimbursable Expense?
•
Below are examples of reimbursable expenses. You will find a
comprehensive list at <insert location>.
Health Care Account
•Doctor/dentist visit co-pays
•Deductibles
•Eyeglasses/contacts
•Orthodontics
•Parking costs related to
medical expenses
•Certain over-the-counter
(OTC) drugs
Dependent Care Account
•Day care fees
•Before/after care fees
•Elder care fees
•Preschool fees
•Emergency care fees
•Transportation expenses
related to transporting
depended to/from care
provider
©SHRM 2008
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What Is Not a Reimbursable Expense?
•
Below are examples of expenses that will not be reimbursed.
You will find a comprehensive list at <insert location>.
Health Care Account
Dependent Care Account
•Cosmetic procedures
•Teeth whitening
•Non-prescription sunglasses
•Health club memberships
•Diet foods
•Long term care premiums
•Maternity clothes
•Vitamins
•Babysitting to attend social
functions
•Expenses for food and
clothing
•Education expenses for
Grades K-12
•Overnight camp fees
•Expenses you take as federal
credit
©SHRM 2008
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When Are You Allowed to Make FSA Plan
Election Changes?
You may make changes to your FSA plan elections:
• During open enrollment.
• If you have a qualified life event changes (also called “change
of life” events). These are:
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Change in your legal marital status (i.e., marriage, legal separation,
divorce, or death of your spouse)
Change in your number of tax dependents
Birth of a child or date you adopt a child, or placement for adoption
Death of a dependent
Change in your dependent's eligibility (e.g., due to attainment of
age, student status, marital status or any similar circumstances)
Change in child care/elder care provider or cost or coverage, such
as a significant cost increase charged by your current day care
provider or a change in your day care provider. This applies to a
Dependent Care FSAs only.
©SHRM 2008
When Are You Allowed to Make FSA Plan
Election Changes? (cont’d)
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Qualified Life Event Changes (cont’d)
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Change in employment status (for you, your spouse or your
dependent) that affects eligibility for health insurance benefits
Changes in entitlement to Medicare or Medicaid for you, your
spouse or dependent
Eligibility or loss of entitlement for coverage under Medicare or
Medicaid by you or your spouse
Start or end of an unpaid leave of absence
Significant change in the cost or conditions of your spouse's health
care coverage related to your spouse's employment that affects
you.
©SHRM 2008
How Does FMLA Leave or End of Employment
Affect Your FSA Plan Participation?
If you are on FMLA leave, you have these four options for your
FSA plan:
1. Pre-pay
You can pre-pay on a pre-tax basis to continue participation in the plan.
2. Pay-as-you-go
You can pay the required "premium" while on leave. The payment can
be made via payroll deductions if you are still receiving income from the
company or on an after-tax basis if you are not receiving income, in
which case you would send us a check each pay period.
3. Catch-up
Upon return from FMLA, you can increase your deductions for the
remainder of the plan year.
4. Drop coverage
You can drop coverage for the FMLA leave period and restart coverage
when you return, with a pro-rata reduction in your election. This means
that you will not be permitted to request reimbursement for expenses
incurred during the leave.
©SHRM 2008
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How Does FMLA Leave or End of Employment
Affect Your FSA Plan Participation? (cont’d)
If your employment with our company ends mid-year:
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When you have already been paid out the full amount of your
FSA election for the plan year but have not yet made enough
contributions to equal the annual election amount, you will not
be held liable for the balance. The company is not permitted
under IRS FSA regulations to require you to pay back for any
amounts you have reimbursed that have not been covered by
your contributions.
When you have already submitted a medical FSA
reimbursement request that has not yet been paid, you will be
reimbursed for the full amount you requested as long as it does
not exceed your total annual contribution election.
©SHRM 2008
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How Does FMLA Leave or End of Employment
Affect Your FSA Plan Participation? (cont’d)
•
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You will not be reimbursed for FSA expenses incurred after
termination unless you elect COBRA continuation for your
Medical FSA. Your contributions will be made on an after-tax
basis. Additionally, there will be a 2% surcharge to postemployment contributions as an administrative fee for COBRA
coverage. If you chose to extend FSA participation after
termination, reimbursements continue for medical expenses
incurred during the period of coverage. If you don’t continue
your medical FSA through COBRA, coverage stops
immediately. A dependent care FSA is not eligible for COBRA
continuation.
If you have eligible expenses incurred before termination, you
are still be eligible for reimbursement and will be reimbursed for
the full amount you requested as long as it does not exceed
your total annual contribution election and if you submit for
reimbursement within 60 days of the date of termination of
employment.
©SHRM 2008
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Tips for Your FSA Plan Elections
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Plan your contributions
Prior to making your election, make a list of all of your anticipated
eligible expenses.
> Avoid overestimating your expenses. You want to make sure you
do not have unused funds for which you have no eligible expenses
at plan year-end—if you do, these funds will have to be forfeited.
>
•
Monitor your balance regularly to keep track of your account
balance
©SHRM 2008
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Questions? Comments?
©SHRM 2008
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Summary
A Flexible Spending Account (FSA) plan is a benefit we offer to you. FSAs
are designed to reimburse you for incurred out-of-pocket health care and
dependent care expenses that are not reimbursable through any other
benefit. You pre-pay the balance through pre-tax payroll deductions.
There are two types of FSAs: health care FSA and dependent care FSA.
The health care FSA is for medical expenses not paid by insurance,
including co-payments, exams, deductibles, vision care and dental
expenses. The dependent care FSA is for dependent care expenses you
incur to care for your eligible dependents, including daycare, afterschool
care or elder care.
©SHRM 2008
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Summary (cont’d)
At the beginning of each plan year, you make your election on whether you
will participate and how much you will contribute for the plan year. Once
you make this election, you cannot change it until open enrollment, except
in special circumstances known as qualifying life events.
After you incur expenses, you submit for reimbursement qualified expenses
incurred during the plan year’s 12-month period of coverage to receive your
funds. You must be able to substantiate the claim with written proof
(receipts). You will receive your reimbursement check directly in the mail
from our Administrator.
There are many advantages of enrolling in FSAs, including significant tax
and costs savings. There are also some disadvantages of enrolling in an
FSA plan, including the “use-or-lose” rule, which means you may not carry
over unused funds from one year to another, and having to complete
paperwork to be reimbursed for expenses.
©SHRM 2008
28
Summary (cont’d)
You may enroll in our FSA plan upon hire or at open enrollment by
completing the FSA Election Form. The maximum you can contribute to
your health care account is <Insert Annual Maximum here>. The
dependent care account maximum is $2,500 per year if single or $5,000
per year if married. (If you are married but file your income taxes
separately, then the maximum is $2,500 per year.) The minimum health
care account contribution is <Insert Annual Minimum here> and the
minimum dependent care account contributions is <Insert Minimum
Amount here.>
You will find a list of reimbursable and nonreimbursable expenses at
<insert location here>.
If you are on FMLA leave, you have several options to continue your FSA
plan participation. You can either pre-pay, pay as you go, catch up upon
return or drop coverage until you return.
©SHRM 2008
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Summary (cont’d)
If you terminate employment mid-year, you still have options, including
electing COBRA for your medical FSA. Your dependent care FSA is not
eligible for COBRA continuation.
If you plan on participating in the FSAs, make sure you plan accordingly
and check your balance frequently.
©SHRM 2008
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Questions? Comments?
©SHRM 2008
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Course Evaluation
Please complete the evaluation sheet you received with your
handouts.
Thank you for your attention and interest!
©SHRM 2008
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