Benefits: Health Care Flexible Spending Account
|William C. Rickle, S.J.
Date to be reviewed:
|Director of Human Resources
Wheeling Jesuit University has provided an IRS 125 Plan Flexible Spending Arrangement (FSA), otherwise known as a "cafeteria plan," for all benefits eligible employees to use to pay for out of pocket expenses with pre-tax dollars for approved health care and dependent care services.
2.0 POLICY STATEMENT
2.1 Policy Statement
The University will provide all full-time employees' access to an IRS Section 125 Health and Dependent Care Flexible Spending Account ("flex spending account").
- "Section 125 Plan" - A plan established per IRS guidelines; a pre-tax payroll deduction, approved by the employee, authorizing the University to deduct, from the benefits-eligible employee's pay check, amounts the employee must pay out of pocket for accident and health benefits (but not Archer medical savings accounts or long-term care insurance), adoption assistance, dependent care assistance, group-term life insurance coverage, health savings accounts, including distributions to pay long-term care services, uncovered medical, dental, vision and dependent care expenses incurred within the benefit year.
- "Benefit Year" - The University's self-defined benefit year begins on January 1 and ends on December 31st of that calendar year.
- "Benefits-Eligible" - Full-time employees (Faculty, Staff, and Administration) are provided, as a part of their overall package, access to health and welfare benefits for themselves and for qualified dependents. Participation is optional with costs being shared by both the University and the employee through payroll deductions as premium contributions. Full time is defined in the policy "Types of University Employment."
- "Dependent Care Flex Spending" - A Dependent Care Flexible Spending Account (FSA) allows the employee to set aside money on a pre-tax basis to reimburse himself / herself for eligible dependent care expenses. The employee can be reimbursed for the cost of services provided for: your qualifying children under the age of 13 or a qualifying relative who is physically or mentally unable to care for himself / herself and who lives with the employee and who the employee claims as a dependent on his / her Federal tax return.
- "Health Care Flex Spending" - A Health Care Flexible Spending Account (FSA) allows the employee to set aside money on a pre-tax basis to reimburse himself / herself for qualified expenses incurred by him / her, his / her spouse, or eligible dependents, that are not covered, or are partially covered, by the employees medical, dental and vision insurance plans during the course of a plan year.
2.3 Authorized Amounts
- Effective January 1, 2013, Internal Revenue Code Section 125(i) was amended by the Patient Protection and Affordable Care Act of 2010 for purposes of limiting employee contributions to flexible spending accounts to a total of $2,550.00 per plan year, per plan participant. Therefore, employees may authorize the University to deduct from their pay check up to $2550 annually for uncovered health care expenses (medical, dental or vision expenses not covered by insurance).
- The maximum amount an employee can contribute to the Dependent Care FSA per year, in accordance with
IRS regulations, is $5,000 for a married couple filing taxes jointly or a single head of household; or $2,500
each for a married couple filing separate tax returns. Employee contributions will be deducted from the
employee's paycheck on a pretax basis throughout the year and credited to the employee's account on a
monthly basis. Employees are allowed to be reimbursed only up for the deductions which they have
authorized from their paycheck.
- Contributions may be limited for highly compensated employees. Due to nondiscrimination regulations
imposed by the IRS, the maximum contribution may be decreased for employees considered "highly
compensated" (as determined by the IRS) in any plan year. Generally, if an employee earns more than the
amount used by the IRS to designate a highly compensated employee in the immediately previous taxable
year, the employee may not be able to contribute the maximum amount to the Dependent Care FSA. (Note:
Health Care Flexible Spending Accounts do not have such a limitation).
- All authorized deductions are made pre-tax and deposited into an account in the employee's name,
lowering the employee's taxable income by the amount deducted.
Employees are eligible to participate in a Flexible Spending Account (FSA) on the first day of the month following
completion of one month employment. To participate in an FSA, the employee must enroll within 30 days of his
/ her date of hire. If the employee does not elect to participate in an FSA during the new hire period, the IRS
requires that the employee wait until the next Open Enrollment period unless there is a qualifying status change
(See HIPAA Notice of Special Enrollment Rights). When the employee enrolls during Open Enrollment,
participation begins on January 1st (the beginning of the benefit year). Health Care Flexible Spending Account
elections do not carry over from year to year – the employee must re-authorize each year during Open
Enrollment if he / she wishes to continue to participate. If the employee does not elect to participate during
Open Enrollment, the employee will not have an account in the following year and will not be able to elect to
participate until the next Open Enrollment unless he / she experiences a qualifying status change.
Employees will no longer be eligible to participate in the FSA if they:
If the employee has a qualifying status change, he / she can change his / her existing Health Care Flexible
Spending Account or enroll in coverage for the first time. The employee must make changes to coverage within
30 days of the qualifying status change. The effective date of the change is the date of the status change. The
employee must provide appropriate documentation of the date of the event to the Human Resource Office.
- Terminate employment;
- Become permanently and totally disabled;
- Go on an unpaid leave of absence;
- Transfer to an ineligible employment category (reduce your hours to part-time status);
The Dependent Care Flexible Spending Account and the Health Care Flexible Spending Account are separate.
Money set aside for the Health Care Flexible Spending Account cannot be used to pay for dependent care
expenses. Similarly, any money set aside for the Dependent Care Flexible Spending Account cannot be used to
reimburse any health care expenses.
- The following is a partial list of examples of expenses which are reimbursable by a Health Care Flexible Spending Account plan: medical and dental deductibles and co-insurance, medical and prescription drug co-payments, prescription eyeglasses or contact lenses, LASIK surgery, insulin and
over the counter (OTC) medications with a prescription.
- The following are some examples of expenses that are not eligible for reimbursement: custodial care in a nursing home, cosmetic surgery, diet pills or appetite suppressants, health club membership fees, vitamins. For a complete list of eligible expenses, go to IRS Publication 502.
- Employees are permitted to submit for reimbursement up to the maximum amount of the flex spending account balance even if those funds have not yet been contributed to the flex spending account as long as they are incurred within the benefit year.
- Changes to the employee's total contribution to the flex spending account must be made during open enrollment unless a qualifying event occurs during the benefit year (birth of child, etc). The employee must adjust the total contribution within thirty (30) days of the qualifying event. All changes to the employees flex spending account must be initiated through Human Resources.
2.5.2 Dependent Care Flex Spending
- The Dependent Care Flexible Spending Account is used to pay for eligible dependent care expenses such as child care for children under age 13 or day care for anyone who the employee claims as a dependent on his / her Federal tax return who is physically or mentally incapable of self-care so that the employee (and his / her spouse, if married) can work, look for work, or attend school full-time. The expenses must be for services in the plan year in which the employee makes contributions. The following is a partial list of examples of reimbursable expenses: qualified day care or child care centers, licensed nursery schools, adult day care centers, summer day camp (not overnight camp), baby sitters, provided the babysitter provides his/her EIN or Social Security number, after-school programs, pre-school and nursery school tuition (below kindergarten),
- The following is a partial list of examples of expenses that are not eligible for reimbursement: expenses while the employee is away from work because of illness or leave of absence, payments to a caretaker who could be claimed as a dependent on the employees (or spouse's) tax return, education expenses for kindergarten and above, expenses for overnight camp, transportation to and from a care site. For a list of eligible expenses, consult IRS Publication 503.
2.6 Roll-Over Provisions
The Department of Treasury issued Notice 2013-71 announcing a significant change to how flexible spending accounts (FSAs) are administered by modifying the "use-or-lose" provision to allow a limited rollover of Medical FSA funds. Notice 2013-71 outlines the following: Employers now have the option to allow participants to roll over up to $500 of unused funds at the end of the plan year to the next plan year. The rollover amount of $500 does not impact the maximum election for the following plan year. (e.g. If you have a maximum election limit of $2,500 and a maximum rollover of $500, a participant could have access to up to $3,000 for the next plan year.)
This eliminates the "Grace Period." The plan is not permitted to allow unused amounts to be cashed out or converted to another benefit. Rollover funds can only be used to pay for qualifying medical expenses.
For a complete analysis of University ERISA requirements and Summary Plan Descriptions, refer the University's "Wrap Document."
The Director of Human Resources, in conjunction with the Controller, has the authority to change or modify this policy at any time with or without notice, and in compliance with the Plan and IRS guidelines, with the approval of the Board of Directors through the University President or his designee.
FAQs for government entities regarding Cafeteria Plans
IRS Publication 503