Please take a moment to review the important features of the Flexible Benefit Plan so you will understand how it will work for you.

Transcription

1 Please take a moment to review the important features of the Flexible Benefit Plan so you will understand how it will work for you. Your Employer has adopted a Section 125 Church Flexible Benefit Plan, which may include a Premium Sharing Account, Medical Expense Reimbursement Account, and/or a Dependent Care Assistance Account. As the Michigan Catholic Conference sponsors the Medical Expense Reimbursement Plan and Dependent Care Assistance Plan (i.e., Flex Plans ), this packet is focused on those two accounts. Participating in the Flex Plans will allow you to reduce your out-of-pocket costs for many unreimbursed after-tax medical, dental, and dependent care expenses with pre-tax payroll dollars. Withholding taxes are only calculated on the balance of your pay. By paying for these expenses with pre-tax dollars, you will see your taxable income reduced and your spendable income increased. How does the pre-tax payment method work? Each payday, your taxes are calculated and withheld based on your taxable income. The higher your taxable income, the more taxes you pay. But the reverse is also true. If you elect to participate in one or both of these Flex Plans, your contributions would not be subject to local, state, federal and FICA (social security) taxes. This means you are reducing your taxable income and that lowers the amount of tax you pay. You can use your tax savings from the Flex Plans any way you want. Even if your tax savings is only $5 a week, that s $260 more each year in spendable income. What expenses can you put in the Flex Plans? There are two categories you can budget through the Flex Plans Certain unreimbursed, out-of-pocket health care expenses. Dependent and child-care expenses. What are the rules and limitations for the Flex Plans? Generally any health or dependent care service which could be claimed for IRS purposes can be reimbursed through the Flex Plans. Any deductibles or copayments you pay under your medical plan. Any copayments you pay under your dental plan. Services not covered by your medical and dental plans. Expenses for vision or hearing care including exams, eyeglasses, contact lenses, and hearing aids. Most other health services which would qualify as a medical deduction under IRS rules. Dependent care for a child under age 13. The dependent care may be provided in or out of your home, but not by someone who is your dependent child under the age of 19 at the end of the year in which the expenses are incurred, is an individual for whom you or your spouse are entitled to a personal tax exemption as a dependent, is your spouse, or is the parent of your dependent child for whom dependent care is provided. A day-care facility caring for six or more children must be a qualified day-care facility. The dependent care must be incurred to enable you and your spouse to work or attend school full-time, and your annual deposit may not be greater than you or your spouse s income.

2 Why is it important to plan what to put in the Flex Plans? There are obvious tax advantages to the Flex Plans. In many ways, it s a shortcut to tax savings. However, the government has placed restrictions on plans of this kind in exchange for the favorable tax treatment. If you know what the restrictions are, you ll make the program work for you. Restriction 1: You can only enroll in the Flex Plans once each year, during the annual enrollment period. Restriction 2: You cannot change your election under the Flex Plans for the duration of the Plan Year, unless there s a change in your status that affects eligibility for coverage and the change in election is consistent with the change in status. These changes are described in your Summary Plan Description and may include certain specified changes affecting eligibility for coverage, such as changes in marital status (marriage, divorce), death, changes in dependent status (birth, adoption, reaching an age limitation), changes in employment status (increase/decrease in hours, termination or commencement of employment). Additionally, the change in election must be consistent with the change in status event. Please see your Summary Plan Description for more details. Restriction 3: You must incur the expense for use of your Flex Plan dollars in their assigned category. For example, dollars allocated for the medical expense category must be used to reimburse health care (not dependent care) expenses. Restriction 4: You must use your Flex Plan dollars by the end of the calendar year (or by your termination date for the Medical Expense Reimbursement Account, if earlier) or you will forfeit them. The government calls this the use or lose rule. Here s how to avoid those restrictions: Plan conservatively. It s very important to plan carefully. Be conservative in estimating your out-of-pocket health care and dependent care expenses. Even if you budget less to your Flex Plan than your actual expenses during the year, you will still reduce your annual taxes, and you won t have to worry about forfeiting any of your money. Read your balance statements. Every time you receive a reimbursement, you ll also receive a statement with your current balances in each expense category. Plus, five times a year, you ll receive a balance statement in the mail. Don t panic. If you incur allowable expenses in December, you have three months after the end of the plan year to file for reimbursement (until March 31st). You should note that, with the exception of advance payments for orthodontia, expenses are incurred when the service is provided, not when the expense is invoiced or paid and services must be incurred in the Plan Year for which your election is effective. Who is eligible to enroll in the Flex Plans? All full-time regular employees whose compensation is reported each year on a W-2 form are eligible to enroll in this plan. How to enroll in the Flex Plan: Complete the enclosed enrollment form and return it to your employer by November 16, How to file a claim: Meritain Health, located in Okemos, Michigan, will be responsible for processing the claims for the Flex Plans. During the plan year when you incur an eligible expense you simply complete a Flex Plan claim form. You can request these forms from the Michigan Catholic Conference. Along with the claim form you must provide the following information for each service, proper documentation for dependent care services and a paid itemized receipt for the medical services. It is also necessary to include your insurance carrier s explanation of benefit for deductibles, copayments and non-covered services or charges. Meritain Health will process the claim and keep track of all options and account balances. Claims may either be mailed to Meritain Health or faxed to them at

3 What steps do I take if I want to learn more about the Flex Plan? Carefully read the materials in this packet and the Summary Plan Description of the Plan. Questions on the Flex Plans can be discussed with your employer or you can call the Michigan Catholic Conference at If I want to participate in the Flex Plans, what options do I have? Medical Expense Reimbursement Account If you have out-of-pocket medical care expenses each year and want to pay for these expenses with pre-tax dollars, you must decide how much you want to deposit for the year in the Medical Care Expense Account. You can deposit up to $2,500 for the plan year. Allowable medical care expenses would include the required deductibles and copayments, annual physicals, eye examinations, lenses and frames, unreimbursed dental expenses, prescription drugs, as well as physician s charges over and above what the medical coverage pays. Please note: You are eligible to enroll in the Medical Expense Reimbursement Account whether or not you participate in the medical plans offered by the Michigan Catholic Conference through your employer (parish, school or administrative unit); however, you must be eligible for major medical group health plan coverage through your employer. Dependent Care Assistance Account If you have dependent care expenses each year and want to pay for these expenses with pre-tax dollars, you must decide how much you want to deposit for the year in the Dependent Care Expense Account. You may be able to deposit up to $5,000 ($2,500 for married individual filing a single return) per plan year. Other limits apply. Please see the Summary Plan Description for all details. Dependent care expenses may include child care, licensed day-care centers, pre-school or nursery school. Premium Sharing Account Your employer may also have adopted a Premium Sharing Account. If you are required to pay a portion of the monthly premium(s) for your medical and/or dental coverage, you can have a portion of your medical and/or dental premiums deducted from your paycheck on a pre-tax basis through a Premium Sharing Account. Your employer will deduct the monthly premiums from your paycheck before they calculate your withholding taxes. As with the Flex Plans, you cannot change your election under a Premium Sharing Account for the duration of the Plan Year, unless there s a change in your status that affects eligibility for coverage and the change in election is consistent with the change in status. With this packet, you will find: Frequently asked questions and answers Eligible and non-eligible medical expenses Flex Plan instructions and enrollment form Please take a few moments to read through this information, because your whole family can benefit from the Flex Plans. If you would like to discuss the Flex Plans in more detail, please call the Michigan Catholic Conference. Michigan Catholic Conference

4 The following is a list of questions frequently asked about the Flex Plans. These may help to explain the plan and how it may benefit you. Q. What are Flex Plans or Flexible Spending Account? A. Michigan Catholic Conference s Flex Plans (also called Flexible Spending Accounts) allow for you to pay for unreimbursed medical care expenses, and dependent child care expenses with pre-tax dollars. Contributions to Flex Plans must be determined prior to the beginning of the plan year. Q. What is a pre-tax or before-tax dollar? A. A pre-tax or before-tax dollar is your gross income before taxes. If you earn $20,000 per year, $20,000 is your gross income and also your gross taxable income. If you are in a 15% overall tax bracket, then you pay $3,000 in annual taxes (15% x 20,000 = $3,000). That leaves you with $17,000 in spendable income ($20,000 - $3,000 = $17,000). Assume that throughout the year, you will spend $2,000 on benefit items for you and your family (benefit items such as dependent health care premiums, dental expenses, deductibles, routine exams, eyeglasses and dependent child day care). You are spending that $2,000 after tax has been paid on your gross taxable income. Now, by simply enrolling in a Flex Plan, you can use pre-tax dollars to purchase the same $2,000 in benefit items and create more take-home pay for yourself. Here s how: Your gross income is $20,000 per year. Before any taxes are paid, you contribute $2,000 through regular payroll deductions to a Flex Plan to spend on benefit items for yourself and your family. Items such as those listed above. You re now spending the $2,000 pre-tax or before federal, state, city and social security taxes are paid on your gross taxable income. Now you have only $18,000 in gross taxable income ($20,000 - $2,000 = $18,000). You re still in a 15% overall tax bracket, but now you only pay $2,700 in taxes. That s because you re taxed on $18,000 of income rather than $20,000 (15% x $18,000 = $2,700). That adds up to $300 in tax savings resulting in $300 more take-home pay ($3,000 - $2,700 = $300). Nothing has changed except that by simply using pre-tax dollars through a Flex Plan, your take-home pay has increased by your permanent tax savings of $300. Note: The above example does not include various deductions allowed by the IRS. You may want to discuss your own unique tax situation with your tax advisor. Q. How do I estimate my expenses? A. The key to making a Flex Plan work is to look at your past records and use them to anticipate and budget out-of-pocket expenses in the health care and child care areas. Q. What happens if my expenses are greater than the amount I budgeted for a Flex Plan? A. If, at the end of the plan year, your reimbursed expenditures through the Flex Plans are greater than your contributions for the plan year, then those additional expenditures from that plan year would be normal after-tax costs to the employee.

5 Q. Who keeps track of my account balance? A. Every time you file a claim for reimbursement, you ll receive an account statement that details your costs, reimbursements and balances. Even if you go through a three-month quarter without filing claims, you ll still receive an account statement with the same information. Also, 30 days before the end of the plan year, you ll receive a summary report for your records so you can use up any remaining account balances. Q. Can I change my contribution level or withdraw from the program during the plan year? A. Once you ve enrolled, the IRS regulations state you can t change the amount of contributions unless there is a qualifying change in status, such as divorce, marriage, legal separation, birth, adoption, annulment, death in the immediate family, change in the number of dependents, termination or commencement of employment by spouse or dependents, termination of employment by employee, eligibility for Medicare or Medicaid, reduction or increase in hours of employment, or a change in residence or work site. Any proposed change must be one that the Plan Administrator determines is allowable under IRS regulations. Additionally, any proposed change must be consistent with your change in status. Please review the summary plan description for more details. Q. What is the use or lose rule? A. The use or lose rule is an IRS regulation specifying that you will forfeit any money left in your Flex Plan accounts at the end of the plan year. In other words, you either use it or lose it. Q. Is the use or lose rule a reason I shouldn t participate in the Flex Plan? A. No. Once enrolled, you will receive periodic statements which will provide you with up to date information on your Flex Plan accounts. This should make the possibility of forfeiting money allocated to your accounts rare. Q. Since my Social Security (FICA) contributions are less when I participate in this program, will that reduce my Social Security Benefits? A. Because you and your employer don t pay Social Security tax on dollars you contribute to the Flex Plan, your Social Security benefit payments will be reduced. But, with your tax savings comes the opportunity to put extra net take-home pay into a savings plan that will more than offset the small loss in Social Security benefits. Q. Are you sure this is legal? Why would the government and IRS allow a plan like this? A. Studies show that when employees become aware of how they spend money on health care and other benefit items, they tend to practice more cost containment. Using the incentive of pre-tax dollars, the government wants to help both you as an employee and your employer control the escalation of health care costs through cost containment. However, to insure that contributions are used solely for the purposes for which they were intended, the IRS has put into place the regulations we discussed earlier (the use or lose rule and the inability to make changes or withdrawals during the plan year unless specific events take place). Q. How do I enroll in the Flex Plans? A. If you are interested in enrolling in the Flex Plans, you must complete an enrollment form and return it to your employer by the due date. Your employer will record your election and forward your enrollment materials to the Michigan Catholic Conference. Your Flex Plan contributions will begin with your first payroll check. Q. How do I file a claim for reimbursement from my Flex Plan Accounts? A. You will complete a claim form, attach proper documentation for the services and send the claim form to Meritain Health, at P.O. Box 30111, Lansing, MI You may also fax your claim to Meritain Health at Claim forms can be obtained from the Michigan Catholic Conference. Please contact the Employee Benefits Department at Q. The Meritain Health claim form has an area for a participant s Social Security Number (SSN#). If I don t want to list my SSN# on the claim form for security reasons, will my claim still be processed? A. Yes. Meritain Health can process your claim without a SSN# as long as your name is legible on the claim form.

6 Examples of Medical Expenses Eligible for Reimbursement as Part of a Flex Plan: Acne Treatment Acupuncture Treatment Alcohol and Drug Addiction Treatment at an Inpatient Therapeutic Center Ambulance Services Artificial Limbs Braces Braille Books and Magazines Car Controls for the Handicapped Childbirth Classes for Mother Only (Not including Child Rearing) Chiropractors Co-insurance Amounts Contact Lenses and Accessories (supplies/ solutions) Co-Payments Cosmetic Surgery if it is Necessary to Improve a Deformity Arising from or Directly Related to a Congenital Abnormality, a Personal Injury Resulting from an Accident or Trauma or a Disfiguring Disease Deductibles Dental Services not Including Cosmetic Dentures Diagnostic, Laboratory and X-Ray Fees Drug and Medical Supplies Durable Medical Equipment -Crutches, Canes, Walkers, Wheelchairs and Medical Beds Eyeglasses, Including Examination Fee Hearing Aid Devices and Batteries Home Improvements Motivated by Medical Considerations (Limited) Hospital Bills Hypnosis for Treatment of an Illness Insulin Lead-Base Paint Removal (for Children with Lead Poisoning) Lodging and Meals if Travel is for Medical Treatment (Limited) Medical Alert Devices (Recommended by Physician) Medical Information Plan Storage Costs for Current Year Prescription Drugs for Medical Care Nurses Fees (Including Nurses Board and Social Security Tax Where Paid by Taxpayer) Obstetrical Expenses Orthopedic Shoes (Limited) Oxygen Physician Fees Psychiatric Care Psychologist Fees Radial Keratotomy/Laser Corrective Eye Surgery Rehabilitation Treatment Routine Care (i.e., Physicals and Well Baby Care) Seeing-Eye Dog and Upkeep Smoking Cessation Programs Special School Medical Expenses for a Mentally Impaired or Physically Disabled Person Surgery and Surgical Fees Telephone, Special for Deaf Television Audio Display Equipment for the Deaf Therapy Treatments Transportation Expenses Primarily in the Rendering of Medical Service; i.e., Railroad Fare to Hospital or to Recuperation Home, Cab Fare in Obstetrical Cases (Limited) Wheelchair The exact federal income tax treatment of allowable medical expenses can be intricate and complex. The above list of items is not necessarily exhaustive and other medical expenses may qualify. For general information on reimbursable medical expenses, please contact Meritain Health Customer Service at

7 Examples of Medical Expenses That do Not Qualify for Reimbursement: Any Expense Incurred in Connection with an Illegal Operation or Treatment Any Medical Expense Which Would Violate the Tenets of the Catholic Church (specifically including medical expenses relating to sterilizations, abortions, and/or birth control devices) Automobile Insurance Premium including the Segment of Premiums Providing Medical Coverage for Persons Injured Through Accident by an Employee s Car Bottled Water Costs for Special Schooling for Problem Child Cosmetic Procedures or Surgery, including Electrolysis and Hair Transplants Cosmetics, Toiletries, Toothpastes, etc. Custodial Care in an Institution Employment Related Expenses Funeral and Burial Expenses Insurance Premiums Long Term Care Expenses Marriage or Family Counseling Maternity Clothes, Diaper Services, etc. Over-the-Counter Drugs that are not prescribed Premiums Paid for Individual Life Insurance Policies Providing Repayment for Loss of Earnings or for Accidental Loss of Life, Limb, Sight, etc. Prescription Drugs From Foreign Countries Salary of a Licensed Practical Nurse Incurred in Connection with the Care of a Normal and Healthy Newborn (even though care is required due to the death of the mother in childbirth) Transportation Expenses to and from Work (even though a physical condition may require special means of transportation) Uniforms Vitamins and Supplements Taken for General Health Purposes The exact federal income tax treatment of non-allowable medical expenses can be intricate and complex. The above list of items is not necessarily exhaustive and other medical expenses may not qualify. For general information on nonreimbursable medical expenses, please contact Meritain Health Customer Service at

8 Enrollment Form Instructions 1. A Flex Plan Enrollment Form must be completed by the employee who is electing to participate in the Flex Plan. 2. Employee s Social Security Number, Name, Address, Gender, Marital Status, Home Phone Number and Work Phone Number. 3. Employer s Name, Address and Unit Number (Employee may need to ask the bookkeeper for this information). 4. Selection of Specific Spending Accounts: You should discuss your individual spending account selections with your employer. If you have any questions on which account may be right for your needs, you may contact a Client Service Representative at the Michigan Catholic Conference at a. If you want to participate in the Medical Care Expense Account, place an X in the box and indicate the monthly amount to be withheld from your paycheck. b. If you want to participate in the Dependent Care Expense Account, place an X in the box and indicate the monthly amount to be withheld from your paycheck. Note: Medical Care and Dependent Care Expense Account contributions must be made in twelve equal even dollar amounts (i.e., $49.99 must be stated as $50.00). c. If you want to participate in the Premium Sharing Account, place an X in the box and indicate the monthly amount to be withheld from your paycheck. Your employer will deduct the required dollar amount from your paycheck.. You should contact your employer regarding your premium sharing dollar amount. Add the monthly contributions from each line and place that dollar amount on the total medical care and/or dependent care monthly contributions line. This is the amount that will be withheld from your paychecks each month. Sign and date your enrollment form after you have read the back of the form. Have your employer sign and date your enrollment form. You should retain the pink copy of the enrollment form and your employer should retain the yellow copy. Your employer will send the original (white copy) to the Michigan Catholic Conference. Once you enroll in the Flex Plan(s), the IRS does not permit a change to your contribution amount, unless a change in status has occurred. Please refer to Restriction 2 located on page 2 in your enrollment packet. Meritain Health does not send confirmation letters at the beginning of the Plan Year. However, as you file claims, as well as on a quarterly basis, Meritain Health will send you a statement so you will know the status of your account balance. At the beginning of the Plan Year, you should verify your contribution amount on your employer s pay stub or directly with your employer.