Chapter 40
FLEXIBLE SPENDING ACCOUNT
LEARNING OBJECTIVES:
A. Know key factors related to flexible spending accounts
REVIEW:
This chapter discusses the flexible spending account – a type of cafeteria plan
that is funded through salary reductions. After discussing when such a plan might
be used, advantages and disadvantages of doing so are covered. The chapter
next provides an example of how a FSA works, and highlights design features.
Tax implications are covered next , followed by ERISA requirements. Plan
installation information is provided, along with two references for learning more.
The chapter ends with a question and answer section covering various aspects
of FSA plans.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
What Is It?
When Is It Indicated?
Advantages
Disadvantages
How It Works – And An Example
Design Features
Tax Implications
ERISA Requirements
How To Install A Plan
Where Can I Find Out More About It?
Questions And Answers
Chapter Endnotes
1
Chapter 40
FEATURED TOPICS:
Flexible spending accounts
FIGURES:
Figure 40.1 Flexible Spending Account (FSA) Enrollment Form
Figure 40.2 Flexible Spending Account (FSA) Employee Reimbursement
Request Form
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 30: Other employee benefits
A. Cafeteria plans and flexible spending accounts
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Know key factors related to flexible spending accounts
KEY WORDS:
flexible spending account (FSA), medical reimbursement, dependent care
reimbursement
DISCUSSION:
1. Discuss advantages and disadvantages of FSAs.
2. Discuss the implications of the IRS position that the employer must be
“at risk” with respect to health benefits in a FSA.
Chapter 40
QUESTIONS:
1. In general, what is done with any amounts left in the employee’s benefit
account?
a.
b.
c.
d.
the money may be carried over to the next year
the money is forfeited
the money can be reallocated to meet other types of expenses
the money must be refunded to the employee
Chapter 40, pp. 309, 310
2. Assume a company is on a non-calendar fiscal year. By what point must FSA
elections be made annually to be effective for tax purposes?
a. during the first month of the year
b. during the first quarter of the year
c. before the beginning of the calendar year for which the salary reduction is
to be effective
d. before the beginning of the fiscal year for which the salary reduction is to
be effective
Chapter 40, p. 311
3. If an employee uses us all the money allocated to a medical FSA, how much
of the money allocated to a dependent care FSA may be reallocated to pay
for additional medical expenses?
a.
b.
c.
d.
100%
50%
25%
0%
Chapter 40, p. 313
4. Assume that an employee elects, beginning in January, to a monthly salary
reduction of $100, for an annual total of $1,200. The money is to be used for
health benefits under a FSA. What is the first month in which the employee
may usually receive reimbursements for covered expenses equaling the
entire $1,200?
a.
b.
c.
d.
January
July
October
December
Chapter 40, p. 313
Chapter 40
ANSWERS:
1. b
2. c
3. d
4. a