Flexible Spending Accounts and Their Benefits for Employees An Employee Communication Presentation

1. Flexible Spending Accounts and Their Benefits for Employees An Employee Communication Presentation

2. Introduction Many employers offer benefits such as Flexible Spending Accounts (FSAs) to their employees. FSAsare 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.

3. Agenda The agenda for our meeting today is: • 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

4. 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.

5. What Is an FSA Plan? (cont’d) There are two types of FSAs • 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.

6. 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.

7. How Does an FSA Plan Work? • FSAsare 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.

8. How Does an FSA Plan Work? (cont’d) • 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.

9. Questions? Comments?

10. Advantages and Disadvantages of Enrolling Advantages • 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.

11. 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. (Payroll taxes calculated to assume a 25% payroll tax rate, which encompasses federal and state taxes, Social Security and Medicare.)

12. 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. (Payroll taxes calculated to assume a 35% payroll tax rate which encompasses federal and state taxes, Social Security and Medicare.)

13. Advantages and Disadvantages of Enrolling (cont’d) Disadvantages • 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.

14. Questions? Comments?

15. When and How to Enroll When do I enroll in our FSA plan? • Upon Hire • 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 New-Hire 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.)

16. Maximum/Minimum Contributions • 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>.

17. 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.

18. What Is a Reimbursable Expense? • Below are examples of reimbursable expenses. You will find a comprehensive list at <insert location>.

19. 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>.

20. 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: • 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 FSAsonly.

21. When Are You Allowed to Make FSA Plan Election Changes? (cont’d) • Qualified Life Event Changes (cont’d) • 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.

22. 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: • Pre-pay You can pre-pay on a pre-tax basis to continue participation in the plan. • 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.

23. How Does FMLA Leave or End of Employment Affect Your FSA Plan Participation? (cont’d) If your employment with our company ends mid-year: • 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 notbe 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 thathas 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.

24. How Does FMLA Leave or End of Employment Affect Your FSA Plan Participation? (cont’d) • 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 post-employment 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 beforetermination, 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.

25. Tips for Your FSA Plan Elections • 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

26. Questions? Comments?

27. Summary A Flexible Spending Account (FSA) plan is a benefit we offer to you. FSAsare 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. 27

28. 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. 28

29. 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 yourhealth 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 nonreimbursableexpenses 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. 29

30. 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. 30

31. Questions? Comments? 31

32. Course Evaluation Please complete the evaluation sheet you received with your handouts. Thank you for your attention and interest! 32