1. What is a Section 125 plan?

A Section 125 plan (i.e., Cafeteria Plan, Flexible Benefits Plan, etc.), allows a plan participant to pay certain expenses with pre-tax dollars. Allowable expenses include an employee’s group health, dental, vision, and term life contributions to his/her employer-sponsored plan. Also, any out of pocket medical, dental, or vision expense, plus dependent day care expenses.

2. What are the types of Section 125 plans?

There are three types of section 125 programs: premium conversion plans, flexible spending account programs, and full-flex plans. Premium conversion plans allow plan participants to convert employee contributions for group health/dental insurance premiums from a post-tax basis to a pre-tax basis. FSA programs allow employees to set aside money, via salary reduction, to reimburse health/dental/vision and dependent day care expenses on a pre-tax basis. Full-flex plans allow employees to choose from a menu of various pre-tax benefits. Often, Section 125 plans combine elements of all three types of the above.

3. Who is eligible to participate in a Section 125 plan?

Only employees of a sponsoring employer may participate in a Section 125 plan. Spouse and dependents may not participate directly in a flex plan, although the plan may provide benefits to them through underlying health or dependent day care program.

Sole proprietors, partners owning 10% or more of the business and shareholders owning 2 percent or more of a Subchapter S corporation may not participate in a flex plan.

4. What is a premium conversion program?

A premium conversion program allows employees to pay for their share of group premiums on a pre-tax basis. Eligible for pre-tax treatment are group health, dental, vision, term-life, and AD&D coverage. Long-term care coverage is not eligible at this time.

5. What is an FSA program?

An FSA (Flexible Spending Account) is an account funded by employee (sometimes employer) salary deferral elections, for the purpose of reimbursing expenses on pre-tax basis. There are two types of expenses that may be reimbursed under an FSA program; health/dental/vision and dependent day care. The employer sets a maximum contribution amount at the beginning of each play year, and participants elect to contribute an amount up to that maximum.

6. What are some of the basic requirements (i.e., rules and regulations) of FSA programs?

(a) Any FSA funds in a plan participant’s account at the conclusion of a plan year will be forfeited to the employer. This is the “use-it-or-lose-it rule.

(b) A plan year must be twelve months except for a short plan year. Short plan years usually are the first plan year adopted by an employer.

(c) During a plan year, reimbursement for expenses in an FSA is based on when the expenses are incurred, not when the expenses are paid.

(d) Reimbursement for an FSA claim must be properly substantiated. (See Q & A 3 for Claims Procedures.)

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CLAIMS PROCEDURES

1. Do I need to use a separate claim form for each receipt?

NO-- you may add up all your bills or receipts and use a single claim form per submission,

2. Can I fax a claim?

YES—the fax number is (508) 285-4607 or 699-1075. Fax both the claim form from the blue voucher and any supporting documentation. Faxed claims do not require mailing the hard copy.

3. What documentation is required to support a claim?

A third party bill or receipt must include date of service, service received, cost of service and the name of the service provider. Proof of payment is not required.

4. What is the status of my account?

Please go to the secure area of the Peter Zappa & Associates website to view your individual account or call Peter Zappa & Associates at (800) 659-0527.

5. How long does it take to be reimbursed?

Reimbursements follow a schedule that varies from company to company. The schedule for your company can be found in the schedules area of the Peter Zappa & Associates website.

6. Why does it take longer to be reimbursed after the plan year has ended?

The 90-day run-out period following the end of the plan year allows plan participants to submit claims for services incurred during the plan year to avoid forfeiture. The schedule changes to one reimbursement per month for the 90-day run-out period. For example, claims received after the final scheduled processing date for a plan ending in December will be processed at the end of January.

7. What happens to unclaimed funds?

Unclaimed funds are the property of the sponsoring employer.

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MEDICAL/DENTAL/VISION FLEXIBLE SPENDING ACCOUNTS

1. Is there a list of the medical services that qualify for reimbursement?

YES—Please refer to the medical list in the forms section of the Peter Zappa & Associates website for a representative listing of covered and excluded expenses.

A more complete listing of reimbursable medical expenses (PUBLICATION 502) may be seen at the IRS website at WWW.IRS.GOV.

2. Can I be reimbursed for vision expenses?

YES—Out of pocket expenses for eye exams, contact lens fitting, glasses, prescription sunglasses and contact lenses are reimbursable.

3. Are Over-the-Counter items like aspirin or vitamins reimbursable?

YES—Effective, September 2003 many Over-the-Counter (OTC) drugs are reimbursable in a FSA program. A rule of thumb: if the OTC drug is for a medical condition (e.g. headache, cold. flu, etc.), that item is reimbursable. If the OTC item is for general health maintenance (e.g., vitamins, toothpaste, etc.) it is not reimbursable. Our Over-the-Counter Medical Expenses link provides an extensive list of the reimbursable items in a FSA program

4. Are there any other supplies, procedures, or services that are not eligible for reimbursement?

YES—In addition to some Over-the-Counter items, cosmetic procedures or supplies and services or activities that promote health rather than treating illness or medical conditions.

5. Can I be reimbursed for orthodontic expenses?

YES—The cost of records, the initial down payment, and monthly expenses may be reimbursed. Please see the orthodontic memo in the forms area of the Peter Zappa & Associates website. Please call Peter Zappa & Associates at (800) 659-0527 to review orthodontic reimbursement procedures.

6. Is massage therapy a reimbursable service?

Massage therapy may be reimbursed if directed by a physician as part of a treatment plan for an illness or medical condition. Please see the massage therapy memo in the forms area of the Peter Zappa & Associates website.

7. Are co-payments for prescriptions and office visits reimbursable?

YES—Co-payments for prescriptions, office visits, hospital co-payments, physical therapy, psychological therapy, and dental procedures are reimbursable.

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DEPENDENT DAY CARE FLEXIBLE SPENDING ACCOUNTS

1. What documentation is needed for dependent care reimbursement?

A claim form from the blue voucher booklet and a receipt(s) or bill(s) showing the date of service, service received, cost of service and the name of the day care provider. A single claim form may be used to cover a single receipt or multiple receipts.

2. Must the day care provider be certified by the state?

NO—There is no IRS requirement for state certification. Please refer to either the Plan Information document or the Day Care Affidavit in the forms area of the Peter Zappa & Associates website.

3. Are day camps considered day care?

YES—Day camps are considered to be a reimbursable day care expense. Overnight camps are considered to be recreation and are not reimbursable.

4. Should I use the Dependent Day Care Flexible Spending Account or the IRS tax credit?

The Dependent Day Care Flexible Spending Account allows up to $5,000.00 to be exempted from federal, state and FICA taxes. The average tax savings is 40% or $2,000.00 per year if you elect the maximum $5,000.00. The tax credit has a sliding scale for the percentage and has a limit of a percentage of $3,000.00 for a single child and of $6,000.00 for two or more children.

Please see the Dependent Day Care Reimbursement Account form in the forms section of the website for a comparison of the two programs and a work sheet.

5. Can I be reimbursed for Dependent Day Care expenses incurred while I am on a leave of absence from my employment?

NO—The Dependent Day Care Flexible Spending Account allows reimbursement so that the parent(s) may go to work each day. A leave does not meet the IRS requirement for daily gainful employment.

6. What happens if my claim is for more than I have available to be reimbursed?

You will be reimbursed up to what has been deducted, year to date, and the claim will continue to be paid as additional money is deducted from your pay. For example, if a claim is for $500.00, but only $100.00 has been deducted year to date, you will be paid $100.00 and will receive disbursement of the remaining $400.00 as additional deductions are made.

7. Do I need to file any forms with the IRS specifically for the Day Care?

YES—Plan participants with Dependent Day Care need to complete a W-10 and a Form 2441. The W-10 is kept with your tax records and the Form2441 is filed with your IRS Form 1040. The forms may be obtained by calling the IRS at (800) 829-3676, accessing the IRS web site at WWW.IRS.GOV, or from your tax advisor. Peter Zappa & Associates have copies of both forms.

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