Important Information Regarding Your Flexible Benefit Plan
- The plan must be in writing
- A Summary Plan Description must be distributed to each plan participant.
- Participant elections cannot be changed or revoked at any time during the plan year unless the participant has a qualified change in status.
- Eligible participant expenses must be incurred during the Flexible Benefit Plan year.
- Funds elected by participants, but unused at the end of the year, will be forfeited to the plan.
- Because employees are not paying any social security tax on the portion of their income that is being redirected to the plan, employees’ social security benefits may be slightly reduced.
- If disability insurance is paid on a pre-tax basis, any benefits received from the insurance carrier, by the employee may be taxable.
- No more than $50,000 of employer-sponsored group-term life insurance may be provided to employees on a pre-tax basis.
- The unreimbursed medical portion of the plan must qualify as an accident or health plan. Therefore, this portion of the plan must exhibit the risk-shifting and risk-distribution characteristics of an insurance policy. The maximum amount of reimbursement (annual election) under an unreimbursed medical flexible benefit plan must be available at all times during the period of coverage to the participant. This means the employer may pay out more in benefits than has been contributed by certain participants.
- The plan may not discriminate in favor of Highly Compensated or Key Employees as to eligibility or benefits.
- The plan must provide a written statement by January 31 of every calendar year showing the amounts paid or expenses incurred by the employer for dependent care benefits during the previous calendar year. This amount is shown on the employee’s W-2 Wage and Tax Statement.
- Employer plans that contain a Health FSA Component must file a Form 5500 if there are more than 100 participants at the beginning of the plan year.
- Regular corporations, partnerships, S corporations, limited liability companies (LLC), sole proprietors, professional corporations, and not-for-profits can all save money on taxes by establishing a Flexible Benefit Plan. While regulations prohibit the sole proprietor, partner, members of an LLC (in most cases), or an individual owning more than 2% of an S corporation from participating in the Flexible Benefit Plan, they may still sponsor a plan and benefit from the savings on payroll taxes.
How are employees reimbursed for their eligible expenses?
Once any employee has incurred an expense and submitted the completed claim form and appropriate third-party receipts, Compensation Consultants, Ltd. is responsible for processing the reimbursement. There are two methods to choose from when selecting a reimbursement option, Rapid Claims Service or Per Pay Claims Reimbursement.
Option 1 – Per Pay Claims Reimbursement
With this service, employees are reimbursed to coordinate with your paydays. Claims are sent directly to Compensation Consultants, Ltd. and paid out of the employer’s checking account. The checks are prepared and mailed directly to participants or to the Employer by Compensation Consultants, Ltd. A disbursement register is sent to you and you are responsible for reconciling your bank account.
Option 2 – Rapid Claims Service
This service gives employees the quickest access to their money and is the simplest for you, the employer. Each payday, the cash for employee deductions is electronically transferred to a claims paying account at Compensation Consultants, Ltd. Then each day, as employee claims are processed, we cut a check or make a direct deposit into the employee’s bank account. This method is by far the most cost effective for employers. Mailings, bank reconciliation, and check writing are all done by Compensation Consultants, Ltd. The employer need only notify us of eligibility changes and we do the rest.
Option 3 – Debit Cards
The use of a debit card provides the participant with “instant” reimbursement. When the participant uses the card at point of purchase to pay for qualified day care or medical expenses, the expenses amount is immediately deducted from their flex account in real time. If the claim can be automatically adjudicated, by the debit card clearing house the participant would not have to submit any substantiation of the expense. However, if the claim cannot be automatically adjudicated, the participant will be notified to submit receipts to verify the expense. The IRS reemphasized this procedure in the July 31, 2006 IRS Notice 2006-69.