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FY2019-33 & 33A Cafeteria Plan Provider Agreement with American FidelityContract No. FY2019-33A
AMENDMENT
SECTION 125 FLEXIBLE BENEFIT PLAN
WHEREAS, Section XI of the Section 125 Flexible Benefit Plan ("Plan") permits
amendment to the Plan;
WHEREAS, the Employer desires to amend the Plan to include changes in the definition
of medical expense related to the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act);
NOW, THEREFORE, the PIan is hereby amended, effective April 15, 2020, or if later,
upon execution of this amendment, as follows:
1.
Section 8.04 (a) is amended by removing that Section in its entirety and in its place
including the following:
"(a) Eligible Medical Expense in General. The phrase 'Eligible Medical
Expense' means any expense incurred by a Participant or any of his
Dependents (subject to the restrictions in Sections 8.04(b) and (c)) during a
Plan Year that (i) qualifies as an expense incurred by the Participant or
Dependents for medical care as defined in Code Section 213(d) and meets
the requirements outlined in Code Section 125, (ii) is excluded from gross
income of the Participant under Code Section 105(b), and (iii) has not been
and will not be paid or reimbursed by any other insurance plan, through
damages, or from any other source. Notwithstanding the above, capital
expenditures are not Eligible Medical Expenses under this Pian.
Q
Section 8.05 introductory language is amended by removing that portion of the
le Section in its entirety and in its place including the following:
"8.05 USE OF DEBIT CARD: In the event that the Employer elects to allow
the use of debit cards ("Debit Cards") for reimbursement of Eligible
Medical Expenses under the Medical Expense Reimbursement Plan, the
provisions described in this Section shall apply."
This amendment is effective for medical expenses incurred after December 31, 2019
4.
Other than changes made herein, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Employer has caused this Amendment to the Plan to be
executed by its duly authorized representative this G day of AV "-11 1 2020.
7
Title: �5D rO u- J
Employer Name: KI ChV-'l
'P6 LUCYS
Employer State or Tax ID: q A - O O 30845
A Coronavirus Disease (COVID-19) Developments: American Fidelity understands the coronavirus is impacting the X
daily lives of our customers and is causing disruptions to those we serve. We are prepared to handle
circumstances related to the coronavirus through our business continuity protocols. Learn More
AMERICAN FIDELITY IIII
adifferent opinion
Over -the -Counter
Items & Menstrual
Products Now
Eligible for
Reimbursement
April 03 2010
4 minute. read
Category: EomU2aace donates
To.help American individuals and businesses impacted by the coronavirus pandemic,.a $2 trillion economic relief package
(CARES Act) was signed into effect on March 27. Included among the changes is legislation related to Health Savings Accounts
(HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrarigements(HRAs). ..
Here are several frequently asked questions to help you understand and prepare for these changes.
What is changing?
The CARES Act allows HSA,, FSA, and HRA participants to be reimbursed fordhe purchase of over-the-counter drugs and
medicines without a prescription from a physician. It also includes a reimbursement provision for menstrual products.
When is the change effective?
This change can take effect upon amending the employer's plan document. The change can be applied to amounts paid or
incurred startingjanuary 1, 2020, where permitted by the employers plan. At this time, there Isno'end date for the new
legislation.
American Fidelity will begin Implementing changes on April 15 for executed amended plan documents.
Can Benefits Debit Cards be used for over-the-counter purchases?
Although this legislation has passed, customers cannot use their Benefits Debit. Cards to make over-the-counter purchases
yet. The Special Interest Group for IIAS Standards (SIGIS) must firstvote on making over-the-counter products eligible within
their point-of-salecoding system. '
Should the change be approved by SIGIS, merchants will likely begin implementing the changes on or around April 15.
because individual merchants may make the change at a different pace—weekly, quarterly, or annually, for example—each
vendor's adoption rate may vary.
Its Important to note that the addition of menstrual care products to the SIGIS system may not begin until around May 15.
Can customers request reimbursement without using their
Benefits Debit Card?
Yes. If a Benefits Debit Card tra nsaction is denied for the purchase of an eligible over-the-counter medical product, or If a
customer wishes to pay out-of-pocket they may submit for manual reimbursement from their HSA, FSA, or HRA.
IMPORTANT: Ensure you receive an itemized receipt to submit with your reimbursement claim.
For American Fidelity customers, ttie reimbursement process remains the same. Customers may).4g in to their online account
or rggLter to get started.
Will plan documents be updated to reflect these changes?
A Coronavirus Disease (COVID-19) Developments: American Fidelity understands the coronavirus is impacting the X
daily lives of our customers and is causing disruptions to those we. serve. We are prepared to handle
circumstancesrelated to the coronavirus through our business continuity protocols. Learn More t
American Fidelitywill send amendments to all Section 125 Plan employers. The documentwill be sentvia email and must be
signed by April 15 to remain compliant.
made an over-the-counter purchase in January. Can that be
reimbursed?
The new provision affects over-the-counter medical or menstrual purchases made beginning January 1,2020. However,.each.
employer must execute the amended plan documents to allow American Fidelity to reimburse those expenses.
What are other eligible expenses?
In addition to over-the-counter_ products, there are manymedical expenses that remain eligible for reimbursement:Ylelet
.EI1gIb1e_ElSWM2S L .
American Fidelity is focused on all legislation related to the COVID-19 pandemic and we will continue to provide updates as
developments arise.
Ifyou have'any questions specifically related to our efforts, please visit our COVID-19 notices page.
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Amy Geer
From: American Fidelity<noreply@email.americanfidelity.com>
Sent: Monday, April 6, 2020 10:01 AM
To: Amy Geer
Subject: Amendment to Your Section 125 Plan
ACTION REQUIRED: Complete Section 125 Plan
Amendment by April 15, 2020
Summary: .
In response to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),
an Amendment to your Section 125 Plan must be made to allow reimbursement for
over-the-counter items and menstrual products.
You do not need to send the Amendment back to American Fidelity. Simply keep the
completed Amendment for your records. Please execute this by April 15, 2020 to
stay compliant.
Download Amendment lo -
Details: Details:
Congress has passed, and the President has signed, the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act) intended to ease the economic impacts
stemming from the coronavirus disease (COVID-19) outbreak by providing
emergency economic relief to families and small businesses. This legislation
includes impacts for employer-sponsored benefit plans.
Specific to Section 125 Plans, the legislation removes the prescription requirement
for over-the-counter(OTC) drug reimbursements that previously applied to
Healthcare Flexible Spending Accounts (FSAs), and Health Reimbursement
Arrangements (HRAs), and other accident and health plans, as well as to Health
Savings Accounts (HSAs). In addition, menstrual care products will now qualify as
medical care for purposes of reimbursement or tax-free distribution. Beginning on
April 15, 2020 (after plan documents are amended), participants may submit claims
for expenses incurred after December,31, 2019.
To implement this change, your Section 125 Plan needs to be amended.
Accordingly, we have amended our Section 125 Plan document so that your plans
can take advantage of the expanded definition of medical expenses.
We have included an effective date of April 15, 2020 on the amendment and will
begin to administer your Section 125 Plan with this change beginning on that date.
Please execute the Amendment by April 15, 2020.
Beginning April 15, 2020 participants may request reimbursement for these
additional expenses through their online account, mobile app, or by paper form.
Please understand that the Benefits Debit Cards may not work as quickly for these
expenses because various credit card technical steps must be accomplished both by
the credit card vendor and the merchants.
If you have any questions, please contact American Fidelity at 800-662-1113.
Please share this article with your employees: Over -the -Counter Items & Meristrual�
Products Now Eliqible for Reimbursement ►
Stay up-to-date on emerging COVID-19 details from American Fidelity ►
americanfidelity.com
This email was sent by: American Fidelity Assurance Company (AF)
9000 Cameron Parkway, Oklahoma City, OK, 73114 US
Privacy Policy
DocuSign Envelope ID: 61ACO2EO-51381-4CCD-9079-A8CEOFD56332
WG-AcctAdmin-
125@AmericanFidelity.com
Phone: (800)662-1113 ext. 8904
Fax: (800)240-0642
Contract No. FY2019-33
AMERICAN FIDELITY
a different opinion ,
Thank you for giving American Fidelity the opportunity to serve as your Section 125 Plan service provider. Based
on the information provided to us, we have prepared a plan document for review by you and your legal
counsel. This document will supersede any previous plan document(s) that you may have in place.
After reviewing the documentation to ascertain its correctness, and if all is in order, sign the
document(s), as required by IRS regulations. To sign document(s), you will need to create a Docusign
account, free of charge. In setting up your account; you will be asked to choose a signature and enter
demographics. If someone other than you is required to sign the documents, .please forward to them by clicking on
"Other Actions" and select "Assign to Someone Else". Then enter the new recipients name and email address.
You can download or print your documents by clicking the links in the confirmation email that you receive after the
documents are signed. Signed copies will remain in Docusign for access at any time.
As your Section 125 Plan service provider, American Fidelity will perform the following services:
• Prepare amended and restated plan documents, when necessary, based on information provided by you;
• Provide signed copies, if signatures are received, of all necessary Section 125 documentation in the case of an
IRS audit of your plan;
• Provide an updated Administration Guide to assist you in the on-going administration of your plan;
• Provide an annual re -enrollment of your employees prior to the plan year anniversary date;
• Provide a 25% Key Employee discrimination test worksheet, when requested;
• Provide a 55% Average Benefits (for dependent care) discrimination test worksheet, when requested;
• Provide compliance assistance in interpreting the IRS regulations governing cafeteria plans;
• Fumish a semi-annual newsletter outlining changes to the sections of the tax code which impact cafeteria plans,
as well as other pertinent information; and
• Provide copies of the laws and regulations governing cafeteria plans upon request.
As the plan sponsor/plan administrator, it is your responsibility, among other things, to prepare and file
any required reports for the underlying welfare benefit plans, prepare and distribute a summary plan
description to employees, provide COBRA, FMI.A or HIPAA administration, verify that all benefits provided by
other carriers in the plan are qualified for tax -exemption, assure that the plan is not discriminatory, and
calculate imputed tax for employer-provided (Section 79) group term life coverage exceeding $50,000,
whether outside a cafeteria plan or being salary -reduced within a cafeteria plan. A copy of the Section 79
Uniform Table Calculation is included (for questions regarding this form, please contact us by email or by phone).
Some important reminders:
• You must have an executed written cafeteria plan document meeting the legal requirements of
Internal Revenue Code Section 125 and formally adopted by the employer. The plan must contain
operating rules covering benefit descriptions, eligibility rules, manner of employer contributions, maximum
amount of employer and employee contributions, the plan year, timing of participant elections and the
irrevocability of ;participant elections. In addition, the plan cannot discriminate in favor of highly
compensated employees or key employees either as to eligibility to participate or in contributions and
benefits.
• If your plan provides either eligibility requirements or contributions and benefits that are not the
same for all eligible employees it may be considered to be discriminatory. Please seek advice from
your tax or legal counsel.
In order to avoid the doctrine of constructive receipt, elections of pre-tax benefits must be
made prior to the anniversary date of the plan. All employees should sign either an affirmative
election, or a statement that they are not making any changes for the coming plan year, and if
waiving participation, should sign a waiver. Mid -year election changes are only allowed if (1) a
qualified event has occurred and (2) the change requested is on account of and consistent with the
event. A change verification form should be signed by the employee (see the Administration Guide for
further guidance).
• If your plan document requires changes, please email us at WG-AcctAdmin-125@americanfidelity.com.
You will then receive a corrected copy electronically to be signed using Docusign.
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-B079-A8CEOFD56332
Election forms must be maintained for a period of at least three years for audit purposes, and longer if
youare subject to ERISA regulations. ERISA regulations require that records be maintained for a period
of at least six years plus the current year; the plan document and any amendments thereto
must be maintained permanently.
If your Section 125 cafeteria plan includes Flexible Spending Accounts (FSAs), the following may clarify
frequent areas of concern:
Uhanges in the Unreimbursed Medical (Health FSA) Account — If the Employer has subscribed to
American Fidelity's uniform coverage risk policy, Health FSA participants will not be allowed to make any
mid -year changes to their election for any reason except for termination of employment. No other
change of status will be accepted. If the Employer is assuming the uniform coverage risk, certain mid-
year changes may be permitted. Please refer to the Section 125 Administration Guide for more information.
Leave of Absence (LOA) — During an unpaid leave of absence, contributions to the Health FSA
account may either be pre -taxed in advance prior to the LOA, made on an after-tax basis while out on leave,
or upon returning to work, may be prorated over the remaining pay periods. Contributions must continue in
order for coverage to continue.
Options at Termination of Employment — Terminating participants In the Health FSA must be offered
COBRA, as follows: if the employer makes no contributions to the Health FSA and if the employee is exempt
from HIPAA (has other medical coverage), then you are only required to offer COBRA through the
end of the cafeteria plan year. As of the date of termination, if the employee has taken more out of the
account than he hascontributed, then you do not have to offer any COBRA coverage.
If your Health FSA includes the debit card, the following may clarify frequent areas of concern:
Once the card is elected by the employee, it will be mailed to the participant approximately two weeks before the
plan year begins. The card is ready to be used once it is received (and the plan year has begun); there is no
further activation required.
The participant is responsible for providing all receipts to American Fidelity Assurance as they are requested. If
the participant does not respond to our requests for receipts in a timely manner, the debit card will be
deactivated and will not be reactivated until the amount of the reimbursement is paid back, offsetting receipts are
sent, or until the requested receipts have been received.
The participant must reimburse American Fidelity Assurance for any ineligible expense charged to the card. The
reimbursement can be in the form of a check or money order. If the participant does not reimburse American
Fidelity for the ineligible claims, the card will be deactivated until restitution is made.
If the participant does not reimburse American Fidelity for any ineligible claims or for any claims for which
they do not submit receipts in a timely manner, the Employer is responsible for making an after-
tax deduction from the participant's paycheck or adjusting the participant's W-2 in order to make
the plan whole.
Please refer to the administration guide included on our website www.americanfidelity.com for more
information. Once again we look forward to assisting you with your Section 125 plan. Please email us at
WG-AcctAdmin-Sl25(a)AmedcanFidelitv.com or call us at (800)662-1113 ext. 8904 any time you have a question
concerning your plan.
Sincerely,
Section 125 Team
Account Administration Department
American Fidelity
DocuSign Envelope ID: 61ACO2EO-5B81ACCD-9079-A8CEOFD56332
TABLE OF CONTENTS
Section1......................................................................................................................Definitions
Section 2..........................................................................................Eligibility and Effective Date
Section 3..............................................................................................Reimbursement Provision
Section4......................................................................................................................Premiums
Section 5...............................................................................................Termination of Insurance
Section 6........................................................................................................General Provisions
G -905/R1 Page 2
DowSign Envelope ID: 61ACO2E0-5B81-4CCD-8079-ABCEOFD56332
SECTION 1
DEFINITIONS
1.01 "Administrator" means the Subscribing Unit or its delegate, which includes the person, persons or group
appointed to act as Administrator under the Plan.
1.02 "Company" means American Fidelity Assurance Company.
1.03 "Contribution" means the amount the Participant authorizes the Subscribing Unit to contribute to the Plan
for reimbursement of Eligible Medical Expenses.
1.04 "Effective Date" means the date the coverage takes effect for each Subscribing Unit.
1.05 "Eligible Medical Expense" means any expense incurred by a Participant or any of his or her dependents
during a Plan Year that may be reimbursed under the terms of the Plan.
1.06 "Forfeitures" means any Contributions not used for the reimbursement of Eligible Medical Expenses.
Such Contributions will be forfeited to the Plan.
1.07 "Loss" means the loss incurred when a Plan Participant terminates employment and is reimbursed for
more than the total amount of contributions made by such Participant as of the date his or her employment terminates.
1.08 "Maximum Plan Year Contribution" means the total amount of a Participant's Plan Contributions for a full
Plan Year, not to exceed 12 months.
1.09 "Negative Account" means any Participant's Plan account that, at the end of the Plan Year, has a negative
balance.
1.10 "Participant means an employee of the Subscribing Unit.
1.11 "Plan" means the Medical Expense Reimbursement Plan described in the Subscribing Unit's Plan
Document.
1.12 "Plan Document" means that document held by the Subscribing Unit which outlines the specifications of
such Section 125 Flexible Benefit Plan.
period.
Policy.
1.13 "Plan Year" means the period stated in the Plan Document. The Plan Year may not exceed a 12 -month
1.14 "Policy" means the Policy issued to the Policyholder.
1.15 "Policyholder" means the Trustee who holds the Policy.
1.16 "Premium" means the amount the Subscribing Unit submits to the Company for coverage under this
1.17 "Reimbursement Recordkeeper" means American Fidelity Assurance Company.
1.18 "Runoff Period" means that period of time following the end of the Plan Year during which Participants
may make claims for reimbursement of eligible expenses.
1.19 "Subscribing Unit" means an Employer or an Employer who is a member of an association who has
elected in writing to participate in the coverage under the Policy.
1.20 "Trust Subscription Agreement" means the form completed by a Subscribing Unit that enrolls such
Subscribing Unit for coverage provided by this Policy.
G -905/R1 Page 3
DocuSign Envelope ID: 61ACO2EO5B814CCD-B079-ABCEOFD56332
SECTION 2
EFFECTIVE DATE
2.01 The Effective Date for each Subscribing Unit will be as stated in the Subscribing Unit's Trust
Subscription Agreement for this Policy. The Effective Date will be the first day of the Subscribing Unit's Plan Year
for which this Policy is issued, or the date the coverage is added to the Subscribing Unit's Plan, whichever is later.
G -905/R1 Page 4
DocuSign Envelope ID: 61ACO2EO-5B814CCD-B079-A8CEOF056332
SECTION 3
REIMBURSEMENT PROVISION
3.01 All Contributions made to the Plan by the Subscribing Unit for a Plan Participant will be:
(a) credited to such Participant's account; and
(b) used to reimburse such Participant for Eligible Medical Expenses, subject to the terms, conditions
and limitations stated in the Plan Document.
When a Plan Participant takes a leave of absence, no coverage for Loss will be provided to the Subscribing Unit
for the current Plan Year with respect to such Plan Participant unless all Contributions elected by that Plan
Participant for the current Plan Year are received by the Company.
3.02 The maximum amount available for reimbursement to a Participant under the terms of this Policy
will be:
(a) the Participant's Plan Year Contribution amount; or
(b) the amount shown on the Subscribing Unit's Trust Subscription Agreement as the Maximum Plan
Year Contribution, whichever is less. A prorated amount is available for those Participants
participating in the Plan for less than 12 months.
3.03 Any amounts remaining to the credit of a Participant at the end of the Plan Year and not used for
Eligible Medical Expenses incurred during the Plan Year shall be forfeited to the Plan as Forfeitures.
3.04 Any amounts reimbursed to a Participant in excess of the Contributions received for that
Participant for the Plan Year will be reflected in a Negative Account.
follows:
3.05 At the end of the Plan Year, the Company will reconcile the Subscribing Unit's Plan accounts as
(a) the amounts of all Participants' Negatives Accounts will be totaled; then
(b) the amounts of all Participants' Forfeitures will be totaled; then
(c) if the total amount of all Negative Accounts exceeds the total amount of all Forfeitures, then such
loss will be bome by the Company; or
(d) if the total amount of all Forfeitures exceeds the total amount of all Negative Accounts, then the
forfeited amounts exceeding the Negative Accounts will be returned to the Subscribing Unit in
accordance with the Plan Document.
Such reconciliation of the Subscribing Unit's Plan accounts will be done following the Runoff Period, and no later
than 160 days after the end of the Plan Year. No claims will be accepted after final reconciliation of the Plan.
3.06 A Plan Participant may not make an election change during the Plan Year, except for termination
of employment. In the event a Subscribing Unit does allow an election change to be made, the Company will no
longer insure the Loss for that Participant and such Loss reverts back to the Subscribing Unit for that Participant.
G -905/R1 Page 5
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-BO79-ABCEOF056332
SECTION 4
PREMIUMS
4.01 Along with other amounts which may be due the Reimbursement Recordkeeper, the Subscribing
Unit will submit a Premium for each Plan Participant. The amount of the Premium is shown in the Subscribing
Unit's Trust Subscription Agreement and will remain the same for a given Plan Year.
4.02 In consideration of the Premium, the Company shall insure the Subscribing Unit against Loss, as
defined in Paragraph 1.07.
G -905/R1 Page 6
DocuSign Envelope ID: 61ACO2E0-5B61-4CCD-B079-ABCEOFD56332
SECTION 5
TERMINATION OF INSURANCE
5.01 Coverage under this Policy shall remain in effect until the end of the Plan Year for which coverage
was issued. At the end of the Plan Year, coverage will continue in full force and effect from Plan Year to Plan
Year, unless terminated by either the Subscribing Unit or the Company upon 60 days advance written notice.
5.02 In the event the Subscribing Unit ceases remitting the Plan Contribution and Premiums during the
Plan Year, coverage for such Subscribing Unit becomes null and void for the entire Plan Year. Premiums will be
returned to the Subscribing Unit and final reconciliation will be handled in the following manner:
(a) If the Subscribing Unit terminates the entire medical expense reimbursement account from its
Section 125 Cafeteria Plan, the Company will honor a Runoff Period. Any claims paid by the
Company in excess of deposits will be recovered immediately from the Subscribing Unit; or
(b) If the Subscribing Unit removes recordkeeping responsibilities to another recordkeeper for the
remainder of the Subscribing Unit's Plan Year, the Company will provide no Runoff Period. Final
reconciliation will be performed immediately and any claims paid by the Company in excess of
deposits will be recovered immediately. If requested by the Subscribing Unit, files will be returned
after the account settlement.
5.03 For a Subscribing Unit that utilizes skip month modes, for the months skipped, the Company must
be notified at the time of election of those Participants who will be making less than 12 monthly Contributions. The
Company must also be notified which months will be skipped. At the end of the Plan Year, if the Company did not
receive Contributions equaling the annual election, and if the Participant has not terminated employment, the
Company will not assume the Loss for reimbursement of claims in excess of deposits for unplanned skipped
months.
G -905/R1 Page 7
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-8079-A8CEOFD56332
SECTION 6
GENERAL PROVISIONS
6.01 ENTIRE CONTRACT - CHANGES: The Policy is a contract between the Company and the
Policyholder. The entire contract shall include:
(a) the Policy;
(b) the application of the Policyholder; and
(c) all endorsements and amendments.
Statements made by the Policyholder or Subscribing Unit are representations and not warranties, if fraud was not
intended. (The words "if fraud was not intended" do not apply in Georgia and North Carolina.) No such
statements will be used to avoid the insurance under the Policy unless:
(a) the statement is in writing; and
(b) a copy of that statement is given to the Policyholder.
The terms of the Policy can be changed only by endorsement or amendment signed by the President or Secretary
of the Company. No agent may change the Policy or waive its provisions.
6.02 NOTICE AND PROOF OF LOSS: Notice and proof of loss must be given to the Company at
9000 Cameron Parkway, Oklahoma City, Oklahoma. Such notice and proof must be made within 30 days
following the final reconciliation of the Plan.
6.03 LEGAL ACTION: No legal action may be brought to recover under the Policy:
(a) until the Subscribing Unit has exhausted all rights to review as oulined in the Plan Document;
or
(b) within 60 days after written proof of loss has been furnished as required.
6.04 CONFORMITY WITH STATE LAWS: A provision of the Policy that, on the Date of Issue,
conflicts with a law of the state of issue is hereby changed to meet the minimum standards of that law as of the
Date of Issue.
6.05 NEW PARTICIPANTS: To the group or class originally covered under the Plan, there will be
added from time to time all persons eligible and applying for participation in the Plan, as stated in the Plan
Document.
6.06 RECORDS EXAMINATION PRIVILEGE: The Company has the right to examine all of the books
and records of the Policyholder or any Subscribing Unit relating to this insurance at any reasonable time. This
right will end the later of:
(a) two years after the termination of the coverage; or
(b) the date final adjustment and settlement of all claims for the Policyholder or Subscribing Unit has
been made.
G -905/R1 Page 8
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-B079-A8CEOFD56332
ADMINISTRATION GUIDE
SECTION 125
FLEXIBLE BENEFIT PLAN
March 2010
DocuSlgn Envelope ID: 61ACO2EO-5B81-4CCD-8079-A8CEOFD56332
U
Section 125 Flexible Benefit Plan
Administration Guide
For customers who are insured through American Fidelity Assurance Company
and/or American Public Life Insurance Company of Jackson, MS.
This information is intended to be a summary guide only and to answer questions concerning the
ongoing administration of a Section 125 Plan. American Fidelity is not the Plan Administrator
of your Section 125 plan. This guide is presented with the understanding that American Fidelity
is not engaged in rendering legal or tax advice. This guide may not speak to all of the issues
surrounding your plan. For definitive guidance or if legal advice or other expert assistance is
required, the services oryour attorney or tax advisor should be sought.
For questions concerning Section 125 or Flexible Spending Accounts (FSAs) call:
American Fidelity 1-800-662-1113
Section 125 Team ext 8904
Section 125 Fax: 1-800-240-0642
Education Flex Claim Fax: 1-800-543-3539
Business Flex Claim Fax: 1-888-243-2638
Visit American Fidelity's Web site to learn more about Section 125 services,
or to download forms, the flexible spending account information packet, the
current Administration Guide, or newsletters. The address is:
www.americanfidelity.com.
IMPORTANT
In order for American Fidelity to continue to provide Section 125
administrative services, please remember that (1) insurance coverage through
American Fidelity or American Public Life must be maintained, and (2) your
agent must be appointed with American Fidelity or American Public Life.
This is especially important to remember if you appoint a different agent.
ADMINISTRATION I
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-ABCEOFD56332
TABLE OF CONTENTS
SCOPE OF SERVICES
Page Number
5
EMPLOYER SUMMARY.................................................................. 6
SECTION I — OVERVIEW............................................................... 9
What is a Cafeteria Plan and Why Have One?
Types of Cafeteria Plans
Advantages/Disadvantages
SECTION H - PLAN SET UP & MAINTENANCE .................................. 1 I
Legal Requirements
Plan Document Requirements
a. Benefit Description
b. Eligibility Requirements
c. Employer Contributions
d. Plan year
e. Timing of elections
f. Irrevocability of Elections
Plan Amendments
Plan Enrollment
Enrollment of New Employees
ERISA Requirements
Record Retention
SECTION IH — MID -YEAR ELECTION CHANGES ............................... 22
Change of Status
Cost Changes
Coverage Changes
Change in coverage under another employer's plan
Loss of Coverage
FMLA
HIPAA Special Enrollment Rights
Judgments, Decrees or Orders
Entitlement to Medicare or Medicaid
COBRA qualifying event
Quick Reference Table
Options for FMLA
Documenting Changes
Payroll Changes
SECTION IV — CAFETERIA PLAN AUDITS ........................................ 32
Requested Documentation
Operational Issues
Self -Audit Checklist
Guidelines for Determining § 125 Eligibility
SECTION V - NONDISCRIMINATION TESTING ................................. 41
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In General
Testing the Plan Overall
1. Eligibility Test
2. Contributions & Benefits Test
3. Key Employee 25% Concentration Test
Health FSA Tests
Dependent Care Tests
Group Term Life Tests
Summary
SECTION VI - REPORTING & DISCLOSURE REQUIREMENTS ............... 52
Reporting Requirements
1. Form 941
2. W-2 Forms
3. Disability Income
Form 5500
Summary of Reporting and Disclosure Requirements
Summary Plan Description
SECTION VH — FLEX SPENDING ACCOUNTS ....................................... 69
In General
• What are they and how do they work?
• Important Restrictions
• Claims for Reimbursement
Medical Expense Reimbursement (Health FSA)
• Qualified Expenses
• Health FSA Rules
• Definition of Dependent
• Claims Appeal Process
• Common Health FSA Reimbursable expenses
Dependent Daycare (DCAP)
• DCAP Requirements
• Work Requirement
• Common Daycare Reimbursable Expenses
• Election Changes for DCAP
• Qualifying Individual
• Child of Divorced or Separated Parents
• Payments to Relatives
• Earned Income Limit
• Student Spouse or Disabled Spouse
• Tax Credit Alternative
• Important Tax Information
What You Need to Know when AFA is the Recordkeeper
• Account Setup
• Voucher Packets
• Monthly Billing and Deposit
• Voucher Processing
Claims Handling
End of Plan Year Processing
How Experience Gains from Forfeitures May be Used
ADMINISTRATION
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COBRA Requirements
F1exConnection®
APPENDIX....................................................................................... A-1
Mid -Year Election Matrix
ADMINISTRATION
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CAFETERIA PLAN ADMINISTRATIVE SERVICES
American Fidelity offers Section 125 administrative services as a value-added service for
customers who purchase our insurance products; American Fidelity is a plan provider or
provider of certain administrative services to assist Plan Administrators and Sponsors in
the day to day administration of their Section 125 cafeteria plans. American Fidelity is not
a Plan Administrator or a Third Party Administrator for Section 125 Cafeteria Plans. The
administrative services are limited in scope and include the following:
• Furnishing a model plan document and completion of the same based on information
furnished by the employer via the producer.
• Assistance in setting up the plan and in maintaining compliance with Section 125
regulations.
• Worksheets for the 25% key employee discrimination test and the 55% dependent
daycare test, if requested.
• Furnishing an annual updated plan, if necessary, based on information provided by the
employer.
• Furnishing an administrative guide to the employer.
• Annual employee enrollment provided by the producer.
• Updated information of governmental changes and rulings via semi-annual newsletter
to the employer.
• Recordkeeping services for flexible spending accounts.
Services not provided by American Fidelity include any non-discrimination testing other
than as shown above, preparation of summary plan descriptions, ERISA, COBRA, FMLA
or HIPAA administration, 5500 reporting (Schedule A provided on request), providing
other than very limited administrative services for companies who lease employees to other
companies, or answering compliance questions for employers for whom we are not the plan
provider.
Section 125 Cafeteria Plan Services are only offered to groups of 10 or more eligible
employees with American Fidelity products.
Rev 11/04
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---EMPLOYER ADMINISTRATION SUMMARY ---
This surnmary highlights the basic administrative requirements for Section 125 Flexible Benefit
Plans. Further explanations are included in this Guide.
1. The employer/plan sponsor must have an executed plan document meeting the
requirements of Section 125 of the Internal Revenue Code and the regulations,
thereunder.
2. When converting qualified insurance premiums to pre-tax dollars under the Section 125
plan, notify all insurance providers of the implementation of the Plan and which of their
products have been included as benefit options.
3. All elections must be completed prior to the start of the plan year. No pre-tax salary
reductions may be made prior to the beginning of the plan year. When an employee
completes an election form, the election may not be changed during the plan year unless
(a) there has been a qualified change of status or other qualified event that allows an
employee to make a mid -year election change, and (b) the change requested is consistent
with the event. All mid -year election changes require a signed change verification form
or a new election form and must be maintained with your permanent Section 125 records.
(For specific instructions concerning these changes and special rules for medical expense
reimbursement accounts, see Section III, Mid -Year Election Changes, and the matrix
attached to this Guide.)
4. All cafeteria plan benefits are exempt from FICA, Federal Withholding, State
Withholding and FUTA taxes. (New Jersey does not exempt State Withholding for
employee salary reductions. Pennsylvania does not exempt State Withholding for
dependent daycare benefits.) Review the statutes in the state in which you operate to
determine whether state withholding and unemployment taxes, if any, can be reduced by
salary reduction contributions. Check with your Workers' Compensation Insurance
carrier to see if the insurance can be based on the reduced pay after the salary reduction
and also check with your state unemployment commission regarding SUTA (state
unemployment tax).
5. As a result of salary reduction under the plan, the employee's FICA contribution
and the employer's matching contribution are reduced. These reductions may
ultimately reduce the Social Security benefits of participating employees.
Employees nearing retirement age should be aware of a slight reduction in Social
Security benefits.
6. If disability income premiums are included in the plan and paid pre-tax, or partially or
totally employer -paid outside the plan, the first six months of disability benefit payments
to an insured will be subject to FICA tax, if applicable. The employee may also have to
pay Federal Income Tax on the benefit. The disability carrier may withhold the
employee's share from the benefit payment and notify the employer of their share. The
total amount of disability benefit payments paid to the insured must be included on the
employee's W-2 form at the end of the tax year in which the payments are made. If an
insurer other than American Fidelity provides disability coverage, notify the carrier that
the coverage is a Section 125 plan benefit option. [When disability premiums are totally
paid by the employee after-tax, the benefits received will be reported on the W-2 form in
Box 12, Code J. Also check "third party sick pay" in Box 13.]
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EMPLOYER ADMINISTRATION SUMMARY CONTINUED ........
7. In addition to the eligibility requirements established in the plan document, plan
participation is restricted to employees, former employees and certain benefits for
dependents of plan participants. The term "employee" does not include 'self-employed
individuals, partners or a greater than 2% shareholder or an employee/spouse, children,
grandchildren or parents of a more than 2% shareholder in a Subchapter S Corporation.
Limited Liability Companies (LLC's) are generally treated like partnerships and
therefore owners are not allowed to participate. The spouse or other family member of a
self-employed individual or a partner may participate provided they are bona fide
employees, and do not themselves have ownership interests in the employer (or have
ownership under state community property laws). It is recommended that the facts of
each individual situation be carefully analyzed in order to determine whether a spouse or
family member may participate. (See guidelines for participation, Section V.)
8. The IRS has requirements regarding nondiscrimination in eligibility for participation in
the plan, and nondiscrimination as to contributions and benefits, as well as
nondiscrimination requirements affecting the underlying benefits in the plan. (See the
section on nondiscrimination testing.)
9. Any premium refunds for benefits under the plan will be remitted to the employer. The
refund may impose a tax obligation on the employer and the employee. The employer is
responsible for any required tax withholding and reporting, and for distributing the
refund to the employee(s).
10. The maintenance and operation of the cafeteria plan must comply with the Section 125
rules and regulations. In addition, the employer/plan sponsor is also responsible for
maintaining compliance, if applicable, with the provisions of the: Employee Retirement
Income Security Act (ERISA), Consolidated Omnibus Budget Reconciliation Act
(COBRA), Health Insurance Portability and Accountability Act (HIPAA), Family
Medical Leave Act (FMLA), Economic Growth and Tax Relief and Reconciliation Act
(EGTRRA), and any other applicable state or federal laws.
11. While there is no requirement for disclosure to participants in a cafeteria plan, under
ERISA rules there may be disclosure requirements for the underlying component plans
(e.g., health insurance funded with pre-tax salary reduction) which must be explained in
the summary plan description ("SPD"). If required, prepare and submit a Summary Plan
Description (SPD) to each employee (see the sample SPD in this Guide). (See the
section on Plan Reporting for a summary of reporting & disclosure requirements.)
12. It is no longer necessary for a Section 125 Cafeteria Plan to file Schedule F with the
Annual 5500 Report. However, the component plans under a cafeteria plan subject to
ERISA (e.g., health insurance and health FSAs, etc.) continue to have a 5500 filing
requirement. All 5500 filings are filed with the Department of Labor (DOL), Employee
Benefits Security Administration (EBSA) rather than the IRS.
13. Retention of plan records is the employer/plan sponsor's responsibility. These records
may include, but are not limited to, resolutions, plan documents, election forms, annual
reports, etc. Election forms should be retained for at least three years for audit purposes,
six years plus the current year, to meet ERISA record retention requirements. Other
documents (e.g., plan document, amendments) should be retained indefinitely as
ADMINISTRATION 7
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permanent records. Employer/plan sponsors subject to ERISA should follow ERISA
requirements for record retention, normally six years plus the current plan year.
14. Employees participating in Dependent Care are required to include Schedule 2 of Form
1040A or Form 2441 with their annual income tax return. Failure to do so could result in
loss of the pre-tax exemption.
15. Employees who participate in a Health Flexible Spending Account (Health FSA), or in a
Health Reimbursement Arrangement (LIRA), are not eligible to participate in a general
purpose Health Savings Account (HSA). HSAs are tax -favored IRA -type trust accounts
created by the Medicare Prescription Drug Improvement and Modernization Act of 2003,
and can be established by eligible individuals covered by a high deductible health plan to
pay for certain medical expenses of eligible individuals, their spouses and/or tax
dependents.
16. It may be necessary to make changes in the operation of the plan from time to time as
changes to the Internal Revenue Code and the applicable regulations occur.
17. IRS rules state that employees must be offered the opportunity each year (before the new
plan year begins) to make a change in their elections. If American Fidelity is handling
your cafeteria plan annual reservice, we must have your cooperation in scheduling the
annual employee enrollment. Our deadline to schedule a reservice for a Premium Only
Plan (POP) is 30 days in advance of the plan date. The deadline to reschedule a reservice
for a plan with flex spending accounts is 45 days in advance of the plan date.
If your plan cycle is January 1 through December 31, the reservice must be
scheduled no later than 60-90 days prior to December 31. Because of the large
number of calendar plan years for which we provide enrollment services, we cannot
guarantee a reservice of your plan if not scheduled by November 1. If you do not
schedule in advance, or if you cancel a scheduled reservice, we cannot guarantee that
your plan will be reserviced prior to the January 1 plan cycle.
The Section 125 rules and regulations require that employees have an opportunity to
make a change in their benefits prior to the plan year, and that all benefits be elected prior
to the beginning of the plan year. Therefore, in order to maintain compliance with the
125 rules, no employee changes can be made if your plan year has already begun. At that
point, the annual re -enrollment for your Section 125 plan is not an option. The only pre-
tax option available to your employee would be an evergreen election, which simply
means that all benefits elected in the previous year will roll over to the new plan year.
(See Section II, Plan Enrollment.)
NOTE: If American Fidelity is the record keeper for your flexible spending
accounts, we require that the flexible spending account benefits must be
affirmatively elected each year.
If our enrollment team has not contacted you within 60 days of your plan year to
schedule the annual reservice, please call to schedule.
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SECTION I
CAFETERIA PLAN OVERVIEW
What is a Section 125 Plan and Why Have One?
Section 125 was added to the Internal Revenue Code by the Revenue Act of 1978. A Section
125 Plan is not a typical employee benefit plan. It does not provide benefits directly to
employees — rather it is the funding vehicle that allows employees to select benefits under other
plans and to finance their elections tax-free. A Section 125 Plan gives employees an opportunity
to choose among several benefits consisting of cash and excludable benefits (e.g., health
insurance).
Most employers adopt a cafeteria plan to help their employees save tax dollars, with some tax
savings for employers too. An obstacle to attaining this savings is a concept called "constructive
receipt." Avoiding the doctrine of constructive receipt is what Section 125 cafeteria plans are all
about.
A general concept of federal taxation is that all benefits received by employees from their
employers are taxable, unless the benefits meet an exception. Take health insurance, for
instance, since it is the most frequently offered benefit. Employer -offered health insurance
generally qualifies for an exception from taxation.
Types of Cafeteria Plans and How They Work
A cafeteria plan can either be a salary reduction plan or a flexible benefits plan. One feature
all cafeteria plans have in common is that they offer employees a choice between cash and
certain qualified benefits.
Basically a salary reduction plan is funded through employee salary reduction, but sometimes
includes employer contributions toward insurance premiums, and can be further categorized as:
• Premium only Plan (POP)
• Flex Spending Accounts (FSA)
• Combination of POP and FSA
• Hybrid POP w/cash-out feature
A salary reduction plan gives employees a choice to receive their full salary in cash (unreduced
salary is the plan's cash option), or to have their salary reduced and applied by the employer to
purchase some or all of the qualified benefits the plan offers. The salary reduction amounts used
to pay for pre-tax qualified benefits do not constitute W-2 wages because they are never paid to
employees.
In a flexible benefit plan the employer allocates a dollar amount each employee can spend on
nontaxable benefits, and also allows employees to buy additional benefits with salary reduction
dollars and/or to elect cash in lieu of benefits under the plan's cash -out option. A flexible benefit
plan may include the following options:
• Employer and employee contributions
• Flex credits (employer dollars toward specific benefits)
• A cash -out choice (optional with Employer/Plan Sponsor)
• May require certain "core" coverage to be elected prior to cash -out
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Advantages
The main advantage of a cafeteria plan is the tax savings for both employers and employees:
For Employers
• Affordability - the employer may offer an enhanced benefit program with no new
employer costs;
• Cushions huge premium increases by allowing employer to pass off some of the cost
to employees (by increasing their share);
• Flexibility - each employee chooses only those benefits needed;
• Morale - the plan promotes employee morale and good will; and,
• Tax Incentives - the plan provides the employer with a way to save on various
payroll -related employment taxes, i.e., FICA and FUTA taxes are calculated on the
adjusted gross income, thereby reducing overall payroll costs. In some states SUI
and workers comp is also calculated on the adjusted gross income.
For Employees
• More Benefits - allows a wider range of benefits to be made available;
Tax Benefits - benefits are paid for with pre-tax dollars which:
(a) reduces income related taxes (no FICA, federal WH or state WH)*
(b) provides new spendable dollars either as take-home pay or to purchase other
benefits; and,
Flexibility - allows employees to select only what they need from the benefits
available.
*Pennsylvania and New Jersey do not follow federal guidelines for state withholding
Possible Disadvantages
For Employers
• Uniform coverage risk for health FSA;
• Set up and administration costs (but recall FICA and FUTA savings); and
• Potential application of tax non-discrimination requirements to health benefits. The
plan may need to alter eligibility and/or contribution provisions to satisfy cafeteria
plan discrimination requirements.
For Employees
• Irrevocability of elections for plan year (unless certain exception requirements are
met);
• "Use or lose" rule for flexible spending accounts;
• Dependent daycare credit v. exclusion under DCAP;
• Taxation of disability benefits if premiums pre -taxed; and,
• Reduction of earnings used in calculating Social Security benefits, resulting in
slightly reduced retirement benefits.
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SECTION II
PLAN SETUP & MAINTENANCE
Legal Requirements
Section 125 plans are considered to be employer-provided qualified fringe benefit plans. In
order to retain the "tax -qualified plan" status, the following requirements must be met:
• The plan must be in writing;
• All plan participants must be employees;
• The participants must have the opportunity to choose among two or more benefits
consisting of qualified benefits and cash; and,
• The plan cannot be discriminatory.
Once the plan sponsor/employer has decided to establish a plan, a board or corporate resolution,
or partner agreement, adopting the plan should be signed. The resolution or agreement
establishes the intent of the plan/sponsor employer. All affiliated companies (related employers,
e.g., commonly controlled companies) who are participating in the plan should be included in the
resolution or agreement. The resolution or agreement must be signed prior to the effective date
of the plan.
Plan Document Requirements
Section 125 requires a written plan document, executed by the plan sponsor/employer before the
effective plan date, and containing the detailed informationfor the plan. If there is no plan
document, the plan does not technically exist and could be declared disqualified by the Internal
Revenue Service. The cafeteria plan document must contain operating rules covering the
following:
• Benefit description;
• Eligibility rules;
• Manner of employer contributions;
• Maximum amount of employer and employee contributions;
• The plan year;
• Timing of participant elections; and,
• Irrevocability of elections.
Cafeteria plan sponsors must insure that the written plan document correctly outlines the plan in
operation. In other words, your plan must be operated according to the plan document
requirements. Prior to the completion of a plan document the plan sponsor/employer must make
numerous decisions concerning the operation of the plan:
a. Benefit Description
Oualified Benefits: Only benefits that are qualified as Section 125 plan benefits can be offered
in a cafeteria plan. Those benefits are clearly defined by, the Internal Revenue Code, and
include:
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• Coverage under an accident or health plan— §106
• Hospital Indemnity'
• Dental and/or Vision Insurance
• Specified Disease Insurance, such as Cancer Coverage'
• Other medical coverage, such as HMO's or self-insured plans
• Accidental Death & Dismemberment Coverage (AD&D)
• Short or Long Term Disability Income Coverage 2
• Group Term Life Insurance for employees only - up to $50,000 face amount
(coverage exceeding $50,000 is taxed to participating employees) - §79
• Adoption Assistance - §1374
• Dependent Day Care Expense Reimbursement (DCAP) - §129
• Medical Expense Reimbursement (Health FSA) - §105 & §2133
• Health Savings Accounts (HSAs) - §223
1. When medical indemnity policies are funded with pre-tax salary reductions, benefits received in excess of
expenses incurred may result in taxable benefits for the insured. These taxable benefits may trigger
reporting and withholding requirements for the employer.
2. Paying for certain disability income policies with pre-tax salary reduction may cause the benefits received
to be taxable to the recipients at the time of payment. These taxable benefits may cause FICA tax
withholding and reporting requirements for the employer.
3. Participation in a general purpose Health FSA will cause the participant to be ineligible to participate in a
general purpose Health Savings Account (HSA). HSAs are tax -favored IRA -type trust accounts, created
by the Medicare Prescription Drug Improvement and Modernization Act of 2003, to pay for certain
medical expenses. of eligible individuals, their spouses and/or tax dependents.
4. Adoption Assistance not available under American Fidelity's Section 125 Plan.
Non -Qualified Benefits: Certain benefits are not qualified and are prohibited from inclusion in
a cafeteria plan but may be offered by an employer outside of the cafeteria plan. These benefits
are:
• Any type of deferred compensation other than §401(k) cash
• Qualified scholarships or tuition reduction program §117
• Working condition (de minimis) fringe benefits under §132, including
transportation fringe benefits (van pooling, mass transit, qualified parking, meals
and lodging provided for the benefit of employees §132)
• Life insurance premiums for plans with a savings or investment feature, such as whole
life or dependent life insurance
• Education assistance benefits §127
• Retirement health benefits (Medicare Part B) paid for active working employees
• Health insurance products which have a "return of premium" feature
• Long Term Care policies
• Medical Savings Accounts
• Qualified Transportation Fringe Benefits
• Reimbursement for overnight camp through the dependent care plan
• §403(b) or §457 benefits
• Health Reimbursement Arrangements (HRAs)
ADMINISTRATION 12
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Groun Term Life — Section 79
Section 79 is the provision of the tax code allowing an employer to provide up to $50,000 face
value of group term life insurance coverage on an employee (no spousal or dependent
coverage allowed*), either through employer contributions, or via employee pre-tax salary
reductions in a cafeteria plan, without having the cost of the coverage included in the employee's
income for federal income tax purposes or in the employee's wages for FICA tax purposes.
*Term life policies that include spouses and/or dependents are not exempted under IRC Sec. 79
and those policies must be paid on an after-tax basis.
In addition to offering up to $50,000 in group term life insurance coverage excludible under
section 79(a), a cafeteria plan may offer coverage in excess of that amount. Group term life
insurance combined with permanent benefits within the meaning of § 1.79-0; is a prohibited
benefit in a cafeteria plan.
The cost of the group term life insurance in excess of $50,000 of coverage is includible.in the
employee's gross income. For purposes of Code §79 the cost of group term life insurance
coverage is determined under a uniform table (see Table I on the attached worksheet) set forth in
the IRS regulations.
Effective August 6, 2007, the New Proposed Section 125 regulations provide that the employee
includes in gross income the Table I cost of the excess coverage (minus all after-tax
contributions by the employee for group term life insurance coverage) and that the entire amount
of salary reduction and employer flex credits for group term life insurance coverage on the life of
the employee is excludible from the employee's gross income.
Any term life provided to employees on a tax-exempt basis (either paid by the employer outside
of a cafeteria plan, or pre -taxed through employee salary reduction within a cafeteria plan) must
meet the requirements of Section 79 in order to maintain the tax exemption.
As a reminder of how to correctly calculate the tax due on Section 79 term life exceeding
$50,000, please review the following scenarios:
EXAMPLE 1 - Excess group term life insurance coverageevrovided through salary reduction in
a cafeteria plan.
The employer provides group term life insurance coverage to its employees only through its
cafeteria plan. An employee, age 42, elects salary reduction of $200 for $150,000 of group term
life insurance. None of the group term life insurance is paid through after tax employee
contributions.
The group term life insurance in excess of the dollar limitation of § 79 is $100,000 ($150,000 -
$50,000 = $100,000).
The Table I cost is $10 per month for $100,000 of group term life insurance coverage for, an
individual age 42. The Table I cost is not reduces because the employee paid no portion of the
premium with after tax contributions.
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The amount that is included in the employee's gross income for the $100,000 of excess group
term life insurance coverage is $10.00 per month, or, $120.00 annually.
EXAMPLE 2 — Excess group term life insurance coverage provided through salary reduction in
a cafeteria plan where employee purchases a portion of group term life insurance coverage with
after tax contributions.
Same facts as Example 1, except the employee elects a salary reduction of $100 and makes an
after tax contribution of $100 toward the purchase of group term life insurance coverage.
The Table I cost is reduced by $100 because the employee paid $100 for the group term life
insurance with after tax employee contributions.
The amount that is included in the employee's gross income for the $100,000 of excess group
term life insurance coverage is $20.00 annually. ($120 - $100 = $20)
EXAMPLE 3 — Excess group term life insurance coverage provided through salary reduction in
a cafeteria plan and outside a cafeteria plan.
Same facts as Example 1, except that the employer also provides at no cost to the employees
group term life insurance coverage equal to each employee's annual salary. Employee A's
annual salary is $150,000. This employee has $150,000 of group term life insurance directly
from the employer, and, also $150,000 coverage through the employer's cafeteria plan.
Employee A has a total of $300,000 of group term life insurance coverage. The amount in
excess of the dollar limitation of § 79 is $250,000 ($300,000 - $50,000 = $250,000).
The Table I cost is $300 annually for $250,000 of group term life insurance for an employee age
42. The Table I cost is not reduced because the employee did not pay any portion of the group
term life insurance with after tax employee contributions.
The amount that is included in this employee's gross income for the $250,000 of excess group
term life coverage is $300.
EXAMPLE 4 — Excess group term life insurance coverage provided through salary reduction in
a cafeteria plan and outside a cafeteria plan.
Same facts as Example 3 except that this employees annual salary is $30,000. He has $30,000 of
group term life insurance coverage provided directly from the employer and elects an additional
$30,000 of coverage for $40 through the employer's cafeteria plan. The employee is 42 years
old.
This employee has a total of $60,000 of group term life insurance coverage. The group term life
in excess of the dollar limitation of § 79 is $10,000 ($60,000 - $50,000 = $10,000).
The Table I cost is $12 annually for $10,000 of group term life insurance for an individual age
42. The Table I cost is not reduces because the employee paid no portion of the group term life
insurance with after tax employee contributions,
The amount that is included in this employee's gross income is $12 for the $10,000 of excess
group term life insurance coverage.
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The following IRS calculation worksheet must be completed for every employee who is pre -
taxing term life insurance, and whose total term life face amount (when aggregating all
term policies) exceeds $50,000.
ADMINISTRATION 15
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STEP ONE:
STEP TWO:
STEP THREE:
STEP FOUR:
CALCULATION OF SECTION 79 TAXABLE AMOUNTS
FOR TERM INSURANCE EXCEEDING $50,000
Calculate total face amount of coverage ander plan.
$ +
$ _
$ (A)
Group life
Individual
Total life insurance
face amount
face amount
coverage in Plan
(all carriers)
in 79 Plan
.05
Find excess face amount subject to income tax.
$
$ (A)
- $50,000 =
$ (B)
Total life
35 to 39 ...................
Face amount subject
insurance coverage
40 to 44 ..................
to income tax
Locate correct uniform premium from table shown below:
Calculate the monthly amount for imputed income.
$ (B) — $1,000 = $ (D)
Face amount Insurance Factor
subject to tax
$ (D) x (C) _ $ (E)
Insurance Factor Monthly Cost from Table 1 Monthly Cost
ADMINISTRATION 16
Cost of $1,000
of protection for
Age of Employee
1 month period
Under 25 ......................
$
.05
25 to 29 ..................
$
.06
30 to 34 ...................
$
.08
35 to 39 ...................
$
.09
40 to 44 ..................
$
.10
45 to 49 ...............
$
.15
50 to 54 ..................
$
.23
55 to 59 ..................
$
.43
60 to 64 ..................
$
.66
65 to 69 ..................
$
1.27
70 and above............
$
2.06
Monthly Cost from Table I:
S (C)
Calculate the monthly amount for imputed income.
$ (B) — $1,000 = $ (D)
Face amount Insurance Factor
subject to tax
$ (D) x (C) _ $ (E)
Insurance Factor Monthly Cost from Table 1 Monthly Cost
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b. Eligibility Requirements for Plan Participation
The employer, must set eligibility requirements for employee participation in the plan. The plan
is easier to administer if the eligibility requirements are consistent with the eligibility
requirements for the benefits included in the plan, generally the eligibility of the medical plan.
The plan must specify the class of employees eligible to participate, service requirements, if any,
and the plan's entry date. (The eligibility date, stated on page 2 Item C of the plan
document, is the waiting period for newly hired employees to participate in the plan.
Newly hired employees must be enrolled before that time period expires, so their benefits
can be deducted on a pre-tax basis on the next day following the end of the eligibility time
period.)
Eligible employees include common law employees and former employees (through COBRA)
and employees in a controlled group. While spouses and dependents (as defined in IRC §152)
cannot make their own elections, they participate as dependents of the employee.
Ineligible employees include self-employed individuals. Owners of "C" corporations are
considered employees and are allowed to participate; they are automatically classified as a
highly compensated employee. However, owners of Sub "S" corporations, Limited Liability
Companies (LLCs), Partnerships (and Limited Liability Partnerships [LLPs% or Sole Proprietors
are not considered employees (because they are "self-employed") and therefore are not allowed
to participate in a 125 plan. Family members (spouses and lineal ascendants or descendants) of
self-employed individuals generally are also not allowed to participate.
In some situations a plan/sponsor employer may "control" (have common ownership with) other
entities. If the plan sponsor/employer owns part or all of other businesses or companies, consult
with your tax or legal advisors concerning which, affiliated companies meeting the control group
rules of Code §414 (b), (c) or (m) can be included in the plan.
c. Employer Contributions*
Under a Section 125 plan, the dollars for the purchase of benefits may come from two sources.
The following terms are used to describe the two types of contributions:
* Non -elective contributions - the term for direct employer contributions (i.e.,
employer's share of premiums, flex credits, etc.), if any; and
* Elective contributions - the term for the employee salary reduction
contributions.
By definition, both types of contributions are considered emnlover contributions for purposes
of this plan. The plan must specify both'the manner of employer contributions, and the
maximum amount of employer contributions.
*If your plan document does not specifically state the non -elective (employer) contributions, then this
information must be included on the enrollment materials. The elective (employee) contributions must be
stated in the plan document. NOTE: The elective (employee) contributions shown in the plan document is
the maximum amount employees can pre-tax. For example, if the document states $8,000 as the stated
maximum elective contribution, and they are pre -taxing $10,000, $2,000 will be taxable to the employees.
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d. Plan Year
The employer or plan sponsor, must define the plan year on which the plan will be operated.
The first plan year begins with the effective date. A plan year can never be more than 12
months. An employer may, within certain parameters, establish a short plan year and the fust
plan year can always be a short plan year. A short plan year is permitted only for a legitimate
business reason and must be set up on a prospective basis. For instance, it may be used to
change to a more convenient bookkeeping schedule, e.g., have the plan year coincide with the
fiscal year, with the calendar year, with the medical policy anniversary date, etc. A short plan
year could also be utilized in a merger or acquisition situation. Consecutive short plan years are
not permissible under any circumstance.
e. Timing of Participant Elections
The effective date of the plan must be chosen carefully. Some of the considerations in choosing
an effective date are:
* Is there enough time to enroll the plan well in advance of the date?
* Will the payroll department have adequate time to make the necessary changes in
the payroll system?
* Does the date coincide with a special date requested by the employer, such as the
medical insurance anniversary or the employer's fiscal year?
* Will the date chosen allow for timely re -enrollment of the plan prior to the end of
the plan year?
f. Irrevocability of Elections
Elections are irrevocable for the plan year, unless an IRS -Approved change of status or other
qualified event occurs. If a qualified change occurs, the requested change must be consistent
with the event that has occurred. (See Section III — Mid -Year Election Changes)
Plan Amendments
If, at any time or for any reason, the plan is amended, the changes must be reflected by an
amended and restated plan document. Most changes, such as a different plan date, adding or
deleting benefits, changing the employer contributions, terminating the plan, etc., require board
action or at the least, a corporate resolution. Copies of all amended documents should be
maintained with the company's permanent records.* Other agreements or plan documentation
may be necessary depending on the actual terms of the plan. Your Account Representative will
review your current plan document with you at your reservice appointment. Any necessary
changes will be sent to us and we will prepare an amended and restated plan document and send
to you as soon as possible. If it is necessary to have a short plan year, it must be set up on a
prospective basis, rather than mid -year, and must be for a legitimate business reason. IRS
guidance does not permit consecutive short plan years for cafeteria plans.
*The permanent files should contain copies of all documents executed under the plan. Be sure that previous
documents are not destroyed when changes or amendments are made to the plan.
Plan Enrollment
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At the time of the initial (and subsequent annual) enrollment, each employee eligible for plan
participation should complete a Section 125 Flexible Benefit Plan Election/Salary Reduction
Agreement Form, or similar election form.* This form is the official record of the benefit
elections made by each employee and serves as a salary reduction agreement between the
employee and the employer. This form should be completed even if the employee waives
participation in the plan. All benefits must be electedrp for to the first day of the plan year,
unless the employee is a newly hired employee and is still within the waiting period for
participation. Any benefits elected after the plan year has already begun (notwithstanding the
addition or significant improvement of a benefit package option) are null and void and cannot be
pre -taxed.
*Although other forms of election are allowed by the IRS (i.e., evergreen, default,
negative elections), affirmative written election forms are the cleanest way to proceed
from a legal standpoint, whether the plan is a new or an ongoing plan, because a plan is
not a cafeteria plan unless it requires that participants make elections among the offered
benefits. Obtaining an employee's affirmative written agreement on a timely basis
clearly constitutes an acceptable election for all types of plans. If American Fidelity is
the recordkeeper for your flexible spending accounts (FSAs), we require an
affirmative election for the FSAs each year.
Benefit elections are irrevocable for the plan year, and changes in an employee's benefit election
during the plan year may only be made on account of a valid change in status, a cost or coverage
change, HIPAA special enrollment events, Medicare or Medicaid entitlement, court orders, or
other qualified event. Family Medical Leave may also trigger a mid -year election change. For
further information concerning benefit election changes, refer to Section III — Mid -Year Election
Changes -- in this guide, and to the mid -year election change matrix, Appendix A-1 through A-9.
Once enrollment has been completed, you will use the election forms to make all necessary
payroll changes as required by the plan. These changes will be effective for the fust payroll
period following the beginning of the plan year.
If an employee elects to participate in one or both of the flexible spending accounts, make
certain the employee understands the terms and conditions of participation, i.e., they are "use or
lose" plans, reimbursements will not begin until the first contribution is received from the
employer, etc.
In addition to the employer's copy of the election form, the employee should also have a copy of
his election form, or in lieu of a copy, a confirmation letter verifying all ' benefits elected.
Election forms should be retained for a minimum of three years (for IRS audit purposes) but at
least six years if subject to ERISA record retention requirements. It is recommended that
election forms be retained at least seven full years; however, please consult your tax or legal
advisors for specific guidance.
Enrollment Of New Employees
Employees will be eligible to enter the plan when the eligibility requirements specified in the
plan document have been met. The time frame set out in your plan's eligibility requirements is
their "open enrollment" period to participate in the plan on a pre-tax basis.
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An election form must be completed by the employeern for to the date the employee is eligible
for plan participation. The fust salary reduction under the plan will begin with the first payroll
period following the eligibility date. It is important to remember that elections may only be
made on a prospective basis and prior to receiving the benefit.
Example: Employee, age 30
Employment date — June 10, 200
Eligibility Requirements: Minimum Age 21
Service -- eligible 1 st of the month following 3 months of service
In this example, the employee will be eligible to participate in the plan effective October
1, 200 . The employee's election form must be completed in time for their deduction to
be taken out of payroll paying for October premium.
EACH NEW EMPLOYEE SHOULD BE ENROLLED IN THE PLAN PRIOR TO THE
DATE ON WHICH THEY BECOME ELIGIBLE FOR PLAN PARTICIPATION. IF
THEY MISS THE OPEN WINDOW FOR ENROLLMENT, THEY CANNOT PRE-TAX
PREMIUMS UNTIL THE NEXT ANNUAL ENROLLMENT AT THE PLAN'S
ANNIVERSARY.
ERISA Requirements:
Governmental plans, such as plans maintained by public schools, cities or counties, are not
subject to the reporting and disclosure requirements of ,ERISA (the Employee Retirement
Income Security Act of 1974), but may be subject to state law concerning fiduciary duties and
responsibilities. All other welfare benefit plans are subject to some extent to the requirements of
ERISA.
These requirements vary depending on the size of your group and the structure of your plan, and
include a summary plan description and a summary annual report. (See Section V - Reporting
and Disclosure Requirements).
Record Retention
ERISA record retention requirements are six years plus the current year. The plan document
and any amendments thereto are permanent records and must be retained indefinitely. American
Fidelity also keeps a duplicate file of the plan document and any amendments during the time we
are your Section 125 administrative services provider. If American Fidelity's Section 125
services terminate for your plan, your file will be retained for five years, after which time the file
is purged and destroyed.
If American Fidelity is the recordkeeper for your plan's flexible spending accounts, the flexible
spending account claims are retained for a period of six years plus the current year, after which
they are purged and destroyed. There is a $50 charge to participants for pulling processed
claims. This charge applies in all situations other than an appeal of a denied claim.
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***YOUR FILES MUST CONTAIN COPIES OF ALL DOCUMENTS EXECUTED
UNDER THIS PLAN. PREVIOUS DOCUMENTS MUST BE RETAINED
INDEFINITELYAND SHOULD NOT BE DESTROYED, EVEN WHEN AN AMENDED
AND RESTATED PLAN DOCUMENT IS EXECUTED.***
Election forms should be retained for three years for IRS audit purposes, but if your plan
is subject to ERISA requirements, those forms will need to be kept for six years, plus the
current plan year. American Fidelity only requires copies of the flexible spending account
(FSA) election forms; those forms will be retained by American Fidelity for the current
plan year and through the end of the runoff period. After the account is reconciled and
closed out for that plan year, the election forms are purged.
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SECTION III
MID -YEAR ELECTION CHANGES
Cafeteria plans must follow the general principle that participant elections are irrevocable for the
plan year. A change in an employee's benefit election may be made prior to the beginning of
each new plan year during the annual enrollment period. The IRS does allow exceptions to this
irrevocability rule, if certain conditions are met. Your plan document allows all changes
recognized by the IRS regulations, unless American Fidelity insures the Uniform Coverage
Risk for the Health FSA. If American Fidelity insures the risk, no changes whatsoever are
allowed in the Health FSA except for termination of employment.
You may allow an employee to change a benefit election during a plan year for the remainder of
the plan year if the change is being made because of a change in status, or other qualified event.
If the reason for the new benefit election is a change in status, the new benefit election must be
consistent with the change in status, i.e., for the health and accident plans (other than the Health
FSA) the change is restricted to events that affect eligibility. Events that do not fit within one of
the following categories will not qualify for a mid -year election change.
Exception #1— Change of Status:
a) Change in employee's legal marital status, including marriage, death, divorce, death of
spouse, legal separation and annulment.
b) Change in number of dependents, including birth, death of employee, adoption and
placement for adoption. "Dependent" is defined in Section 152 of the Tax Code, so gaining
or losing an individual who is not a qualifying dependent will not generally allow an election
change.
c) Change in employment, including any employment status change affecting benefit eligibility
of the employee, spouse or dependent, such as: termination or commencement of
employment ("step back" into previous election if rehired within 30 days); a change in hours;
a strike or lockout; a commencement or return from an unpaid leave of absence; or a change
in worksite. If the eligibility for either the cafeteria plan or any underlying benefit plans of
the employer of the employee, spouse or dependent rely on the employment status of that
individual, and there is a change in that individual's employment status resulting in gaining
or losing eligibility under the plan, this would be a valid change in status. This category does
not apply if benefit eligibility is not lost as a result of the event. Plan participation
prohibited if rehired after 30 days.
d) Dependent satisfies or ceases to satisfy dependent eligibility requirement, including
attainment of age, student status, marriage, etc.
e) Residence change of employee, spouse or dependent, affecting the employee's eligibility for
coverage. (Moving out of the HMO area would be a valid status change.)
f) Commencement or termination of adoption proceedings.
Consistency Requirement for a Change in Status. If a change in status event occurs, the
cafeteria plan can only permit employees to make election changes that are consistent with the
event. Under the general consistency rule, an election change is a change in status if: (1)
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the election change is on account of and corresponds with the event AND (2) must affect
eligibility for the coverage. The regulations also set out four special consistency rules that
apply:
• Group Term Life/Disability/Dismemberment Coverage - An exception to the general
rule permitting participants to increase or -decrease group term life insurance, disability, or
AD&D coverage for any change in status event, even though eligibility under the plan is not
gained or lost.
• Dependent Care and Adoption Assistance Expenses - An exception to the general rule
permitting election changes when a change in status is on account of and corresponds with
the change in status that affects eligibility of dependent care or adoption assistance expenses
for the tax exclusions available under Code Sections 129 or 137.
• Loss of Spouse or Dependent Eligibility - A special rule limiting election changes that can
be made upon an employee's divorce, annulment or legal separation from a spouse, the death
of a spouse or dependent, or a dependent ceasing to satisfy the eligibility requirements for
coverage. The employee can cancel health insurance and accident coverage only for the
spouse or dependent, as applicable.
• Gain of Coverage Eligibility Under Another Employer's Plan —A role imposing a special
condition if an employee, spouse and/or dependent gains eligibility for coverage under
another employer's cafeteria plan as a result of a change in marital or employment status. An
employee's election to cease or decrease coverage for that individual under the cafeteria plan
will correspond with the change in status only if the individual(s) coverage becomes
effective or is increased under the other employer's plan.
In addition to the above listed status change events, there are other events that would also allow
a mid -year election change.
Exception #2 —Cost Changes - applies to all benefits except a health FSA:
(a) Insignificant Cost Changes: If the cost of a qualified benefit insignificantly
increases/ decreases during the plan year, your cafeteria plan allows for an automatic
change in salary reduction to be made. The regulations do not define the dollar or
percentage amount that is considered insignificant. Plan sponsors need to make this
determination: based on all the facts and circumstances in their particular situation.
(b) Significant Cost Changes: If the cost of a benefit package option significantly
increases during the plan year, employees are allowed to either (1) make a
corresponding increase in their salary reduction amount, or (2) revoke their elections
and elect similar coverage under another benefit package option. The option to
choose like coverage can be for benefits in the employer's plan, or the employee can
choose like coverage under the spouse's employer's plan. A coverage election may be
revoked if no similar coverage option is available. If the cost of a benefit package
option significantly decreases during the plan year, employees who had not
previously enrolled may enroll and participants who elected another option providing
similar coverage may revoke their current coverage election and elect the option that
has decreased in cost during the year.
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NOTE: In the case of dependent care, this exception applies only if the cost change
is imposed by a dependent care provider who is not related to the employee by blood
or marriage. If the care provider is a relative, then no election change due to a cost
change is allowed.
Exception #3 — Coverage Changes — applies to all benefits except a health FSA:
(a) Significant curtailment: If the coverage under a plan is significantly curtailed but
does not result in loss of coverage, employees may revoke their current election and
make a new election under another benefit option offering similar coverage, but
coverage cannot be dropped. Coverage is significantly curtailed only if there is an
overall reduction in coverage provided under the plan so as to constitute reduced
coverage generally to all participants.
(b) Significant curtailment with a loss of coverage: If there is a significant curtailment
that results in a loss of coverage, the election can be dropped if no similar benefit
package option is available. A "loss of coverage" is a complete loss of coverage
under a benefit option, such as an elimination of a benefit package option, an HMO
ceasing to be available in the area where the participant resides, or an individual
losing all coverage as a result of an annual or lifetime maximum.
(c) Addition or significant improvement of a benefit package option: Employees can
change their election to take a newly available or significantly improved benefit
package option, regardless of whether the new benefit had been offered before.
Employees may elect the newly added or significantly improved benefit package
whether or not they have previously made an election under the cafeteria plan or
have previously elected the benefit package option. The pre-tax election would be
made on a prospective basis for the new or improved benefit package option. The
rule does not apply to an employee seeking to change from one carrier to another
mid -year without the addition or deletion of a benefit option. In that instance, the
employee can switch to like coverage but cannot make a corresponding cost change.
Exception #4 — Change in coverage under another employer's plan — applies to all benefits
except a health FSA:
An employee can make a prospective election change that is on account of and corresponds with
a change made under the plan of another employer. The rule applies to:
(a) Mandatory changes in coverage initiated by the insurer of the spouse's plan; or
(b) Mandatory changes in coverage initiated by the spouse's employer (a first offering of
coverage or a significant change in the existing coverage); or
(c) Optional changes in coverage initiated by the spouse's employer (a newly available
coverage option); or
(d) Optional changes in coverage initiated by the spouse (through open enrollment at the
spouse's place of employment).
Exception #5 — Loss of Coverage under Group Health Plan of Governmental or
Educational Institution (does not apply to health FSA):
Mid -year election changes are permitted on account of certain coverage losses under group
health plans of certain governmental or educational institutions.
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Exception #6 — Family Medical Leave Act:
An employee who elects to take leave under FMLA, a mid -year election change is allowed.
Payment options are as follows: (a) employees may pre -pay their contribution obligations on a
pre-tax basis (during the same plan year), (b) continue contributions on a month to month basis
(pre-tax if the employee is receiving salary continuation payments), or (c) catch up unpaid
contributions (pre-tax) over the remaining pay periods when returning to work. When the
employee returns to work, he has the right to be reinstated if the coverage terminated during the
leave.
Exception #7 — HIPAA Special Enrollment Rights:
A HIPAA special enrollment event would allow an election change for health coverage to the
extent allowed by HIPAA. A special enrollment right can arise as a result of certain losses of
eligibility for coverage under a group health plan or through health insurance. A special
enrollment right can also arise if a new spouse or dependent is acquired by marriage, birth,
adoption, or placement for adoption. Special enrollment rights under the health plan will be
determined by the terms of the health plan.
Exception #8 — Judgments, Decrees or Orders (OMCSOs, etc.):
A judgment, decree or order resulting from a divorce, legal separation, annulment or change in
legal custody (including a qualified medical child support order [QMCSO]) that requires
accident or health coverage for an employee's child or dependent foster child that is a dependent
of the employee, the cafeteria plan allows the employee to add or drop coverage consistent with
the order. Also, coverage may be dropped for a child if an order requires another person to cover
the child. Coverage can only be dropped if the dependent actually becomes covered under the
other person's plan pursuant to the order.
Exception #9 — Entitlement to Medicare or Medicaid:
Gaining Medicare or Medicaid entitlement would allow an employee to make a prospective
election change canceling or reducing health coverage under the employer's plan and reducing
the salary reductions. Also, losing Medicare or Medicaid entitlement would allow an employee
to make a prospective election to add health coverage under the employer's plan, and an increase
in salary reductions.
Exception #10 - COBRA oualifvine event:
An employee may increase the pre-tax contributions for coverage under a current employer's
plan if a COBRA qualifying (or similar state law continuation) event occurs with respect to the
employee, the employee's spouse or a dependent — such as loss of eligibility for regular coverage
due to loss of dependent status or a reduction in hours (e.g., the employee goes from full time to
part time, loses health coverage and elects COBRA). The COBRA rule does not apply to
COBRA coverage under another employer's plan.
Have employees complete and sign a change verification form or a new election form for a
qualified mid -year change. The forms can be ordered by calling 1-877-967-5748, extension
5518, form #S-1094. Or, a copy can be emailed by calling (800) 354-7059.
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See the Mid -Year Election Change Chart shown in the Appendix to this Guide. This chart
provides valuable guidance as to qualified events and allowable changes, and, reiterates the
consistency requirements.
your plan contains the health Flexible Spending Account (Health FSA) as a ben
tion; and if AFA provides recordkeeping services andinsures the employer's unifo
verage risk, participating employees are subject to more stringent rules concern
fiction changes. Generally NO CHANGES are permitted except for termination
tployment (the participant can drop the coverage), unless otherwise agreed to in writ
the Employer and American Fidelity. Failure by participants to make all requi
ntributions to the either of the flexible spending accounts terminates their coverage in
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QUICK REFERENCE TABLE
OF
REGULATORY EXCEPTIONS
Events Permitting Election Changes
Event Applies Only to These Coverages
#1— Change in Status
Applies to all qualified benefits (i.e.,
accident or health coverage, group term life,
Six categories of events include:
and dependent care benefits.
• Change in employee's legal marital status
• Change in number of dependents
• Change in employment status
• Dependent satisfies (or ceases to satisfy) dependent
eligibility requirements
• Change in residence
• Commencement or termination of adoption
proceedings
Strict consistency rules apply to changes due to a change
in status
#2 Cost Changes
• Automatic increases/decreases in elective
All qualified benefits except for Health FSA
contributions
(May not apply to dependent daycare)
#3 Significant Cost Increases
All qualified benefits except for Health FSA
#4 Significant Coverage Curtailment
All qualified benefits except for Health FSA
• With or without loss of coverage
#5 Addition or Significant Improvement of Benefit
All qualified.benefits except for Health FSA
Package Option
#6 Loss of Coverage under Group Health Plan of
All qualified benefits except for Health
Governmental or Educational Institution
FSAs
#7 Change in Coverage of Spouse or Dependent Under
All qualified benefits except for Health
Other Employer's Plan
FSAs
#8 FMLA Leave
Group Health plans
#9 HIPAA Special Enrollments
Group Health plans
#10 COBRA Events
Group Health plans
#11 Judgment, Decree or Order
Group Health plans
#12 Medicare or Medicaid Entitlement
Group Health plans
#13 Changes in Pre -Tax HSA Contributions
Health contributions under a cafeteria plan
Under the Family Medical Leave Act (FMLA), an employee who drops health coverage because
of FMLA leave may resume coverage at the same level when returning from leave. (See
payment options for Cafeteria Plan benefits on the following page.)
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PAYMENT OPTIONS FOR CAFETERIA PLAN BENEFITS
FOR EMPLOYEES ON UNPAID FMLA LEAVE
OPTION I
Pre -pay: Continuing coverage by paying up -front. The employee pays the entire amount due
for the FMLA leave period before FMLA leave begins.
Tax Treatment: Employees can be given the opportunity to make pre-tax salary reductions
(only through the end of the plan year in which the leave began) from pre -leave paychecks (or
any sick leave or vacation pay applied toward the leave) contributions that will cover his share of
the contribution for all or part of the expected duration of the leave. Employee may opt to make
payments on an after-tax basis.
Other Rules: The prepay option cannot be mandated. The cafeteria plan may include the pre-
pay option for unpaid FMLA leave, even if the pre -pay option is not offered to employees on
unpaid non-FMLA leave.
OPTION II
Pay -as -you -2o: The Employee pays his/her share of premium payments on the same schedule as
would apply if the employee were not on FMLA leave.
Tax Treatment: Payments may be made on a pre-tax salary reduction basis or after-tax to the
extent that the employee receives compensation (e.g., cash -out of unused sick leave or vacation
days) during the leave period.
Other Rules: The pay-as-you-go option must be offered to employees on FMLA leave if it is
offered to employees on non-FMLA leave.
Under the pay as you go option, if the employee stops making contributions during the leave,
and if the employer doesn't make such payments on the employee's behalf, then the employee's
benefits would end. If an employer elects to continue to pay for the employee's coverage during
leave, the employer may recoup the employee's share of those payments when the employee
returns.
OPTION III
Catch up: The employee and employer agree in advance that the employer will advance
payment of the employee's share of the cost of coverage during the leave and that the employee
will pay the advanced amounts when he returns from leave. Upon return from leave, the
employee makes catch-up salary reduction contributions to cover his share of the cost of
coverage during the leave. In addition, pre -leave salary reduction election resumes for the
duration of the plan year unless the employee makes a change in election as permitted under the
permitted election change regulations (i.e., for change in status) upon return from leave.
Tax Treatment: Pre-tax catch-up contributions are permitted from any taxable compensation,
including cashing out of unused sick days or vacation day. Payments are also permitted on an
after-tax basis. If an employee doesn't make the required contributions while on leave, the
employer may use the catch-up contribution option to recoup the employee's share when the
employee returns, even without the employee's prior agreement.
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Other Rules: The catch-up option may be the sole option for employees on unpaid FMLA leave
only if it is the sole option offered to employees on unpaid non-FMLA leave.
SPECIAL HEALTH FSA RULES APPLICABLE TO EMPLOYEES ON FMLA
• The plan must permit the employee to be reinstated in the health FSA upon return
from FMLA leave on the same terms as before taking leave. .
• The employer may require reinstatement of health FSA coverage upon the
employee's return from an FMLA leave, but only if the employer requires
reinstatement of coverage upon return from a non-FMLA leave of absence.
• Regardless of the payment option selected by the employee, for as long as the
employee has continued coverage, the full amount of the elected coverage, less
any reimbursements, must be available to the employee at all times, including
during the FMLA leave.
• If an employee's coverage under the health FSA ends while the employee is on
FMLA leave, then the employee isn't entitled to reimbursements for claims
incurred during the period when the coverage isn't in force.
• If a health FSA participant revokes coverage, or chooses the pay as you go option
and then fails to pay a required contribution, the employee has two options:
■ Prorated coverage: The employee may elect to reinstate a level of
coverage that is reduced by the amount of contributions missed during
the leave, at the original contribution amount; or,
• Reinstatement of full coverage: The employee may elect to reinstate
the level of coverage in effect when the leave began, provided that the
employee pays the missed contributions.
NOTE: When American Fidelity insures the Health FSA uniform coverage risk, no
changes for any reason are allowed for. the Health FSA. Employees returning from a leave
of absence (whether subject to FMLA or not) must make up all contributions missed
during the leave. If an employee's coverage under the health FSA ends while the employee
is on FMLA and contributions have not continued, the employer is responsible for that
participants' negative balance.
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Documenting Changes
There may be other events not listed in the regulations that would permit a mid -year election
change, such as a mistake (there must be clear and convincing evidence that a mistake has been
made), or a participant not passing medical underwriting, or election changes required by the
plan administrator after the plan year begins (e.g., to make adjustments in the elections of key
employees in order to pass the nondiscrimination testing.)
All mid -year election changes should be substantiated by requiring the employee to certify what
event has occurred and why an election change is consistent with the event. The employee
should complete either a Change. Verification/Election form S-1094, or a new election form, 5-
1008 or S-915, reflecting the desired change. A copy of that form must be kept with the election
forms for the current plan year.
The election form to enroll new hires for a premium only plan is S-1008. For plans that also
include flexible spending accounts, the election form number is S-915. Employees who elect the
flexible spending accounts are also required to sign the reimbursement agreement, form number
S-999. These forms can be order by calling 1-877-967-5748, ext. 5518.
If a monthly cutoff date for submitting changes is required by the employer, this date should be
communicated to all employees. All benefit election changes will be effective in the first payroll
period following the date signed by the employee and will remain in effect for the remainder of
the plan year in which the change was made.
CAUTION: Election changes outside of the parameters listed in this section (and in the
mid -year election change matrix — Appendix A-1 through A-9) should not be allowed.
Wholesale non-compliance with the final irrevocable election requirements could result in
plan disqualification, imposition of employment and income tax withholding liability and
penalties with regard to all employee pre-tax and employer contributions under the plan.
Tax liability and penalties would accrue to both the employer and the employees.
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Payroll Changes
After election forms have been completed and turned in to the payroll office, it will be necessary
to begin making the necessary changes to the payroll system. Prior to the enrollment, the payroll
system should be checked for compatibility with the Section 125 Plan concept.
Before the Section 125 Plan was established, the premiums for insurance coverage were
probably payroll deducted after income taxes were withheld from the wages. Under the Section
125 Plan, the premiums for insurance coverage and expense reimbursement contributions elected
under the plan will reduce the employee's income prior to calculating income tax withholding.
See the illustration below:
WITHOUT SECTION 125
WITH SECTION 125
Average Monthly Salary
$3,000
Average Monthly Salary
$3,000
Less Estimated Federal
Less Medical Premium
-150
Withholding (20%)
-600
Less Disability Premium
-25
Less Estimated FICA (7.65%)
-230
Less Other Supplemental
Premium
-25
$2,170
Less Out -Of -Pocket "Flex"
Expenses
-50
Less Medical Premium
-150
Less Disability Premium
-25
Taxable Income
$2,750
Less Other Supplemental Premium
-25
Less Estimated Federal
Withholding (20%)
-550
Net Take -Home Pay
$1,970
Less Out -Of -Pocket "Flex" Expenses 50
Less Estimated FICA (7.65%)
-210
Spendable Income
$1,920 Net Take -Home Pay/
Spendable Income $1,990
Qualified benefits under the Section 125 Plan are exempt from FICA, Federal, FUTA and
State taxation in each State, with the exception of state withholding in New Jersey for salary
reduction amounts, and in Pennsylvania for dependent daycare amounts. Contact your
accountant, state taxing agency, or payroll provider for specific information about your state
employment tax and Workman's Compensation tax.
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SECTION IV
CAFETERIA PLAN AUDITS
The IRS is responsible for enforcing the requirements of the Code with respect to cafeteria plans,
including civil and criminal investigations of potential violations, and they are therefore the principal
entity auditing cafeteria plans. The Department of Labor (DOL) also audits welfare benefit plans
(the underlying benefits in your cafeteria plan) and will also ask questions about the cafeteria plan to
the extent relevant to the underlying welfare benefit plans, and may share information with the IRS.
The IRS does audit cafeteria plans, although this is not well known, and their attention to cafeteria
plan compliance issues has increased. Field agents have been taught Code § 125 basics, raising their
awareness of cafeteria plan issues. The preliminary draft of IRS examination guidelines for cafeteria
plans (not finalized) is useful as an indicator of IRS thought processes regarding the compliance
issues considered most important. The proposed regulations, as well as any final regulations, will be
enforced.
Members of the IRS Cafeteria Plan Industry Specialization Program ("ISP") team have informally
indicated that if a plan is audited, the focus will be primarily on documentation issues such as: Is
there a plan document? Was a Form 5500 filed? Were salary reduction agreements signed?
Were non-discrimination test performed? Generally, the IRS looks for problems that constitute
qualification, operational or nondiscrimination defects under the §125 rules. In order to determine
the existence and scope of such problems, the IRS must review both plan documentation and
methods of plan operation.
DOCUMENTS THE IRS MAY REQUEST AND REVIEW (not all inclusive)
• Form 990 returns filed for voluntary employee beneficiary associations (VEBAs).
• Lists of all cafeteria plans, welfare benefits plans, and VEBAs, including any controlled group
members.
• Information about the plan sponsors, employer ID numbers, plan names, plan numbers and
types.
• The plan document and amendments for the cafeteria plan and the component plans (health
FSAs, DCAPs, etc.). The component plans may be part of the cafeteria plan.
• A summary plan description (SPD) for the cafeteria plan and component plans.
• Policy statements, employee handbooks, enrollment packages and any memoranda describing
benefits.
• Benefit election/salary reduction forms.
• Administrative committee minutes.
• Identity and description of responsibilities of each party that administers and updates the plans.
• Flowcharts of the procedure for claims payments.
• Lists of eligible and ineligible employees for the cafeteria plan and each component plan,
including names of individuals participating in the plan who are not employees.
• Nondiscrimination test results for the cafeteria plan and component plans.
• Form W-2 reconciliation for employees reflecting pretax reductions.
• Claims registers for each welfare benefit, and plan and FSA benefits.
• Annual claims denial reports, including reasons for the denials.
• Plan bank account information.
• Schedule of employer and employee contributions to cafeteria plan and component plans.
• Explanation of how FSA forfeitures are handled.
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• Copies of insurance policies, administrative service contracts for TPAs and other service
providers, and fidelity bonds for all persons handling welfare benefit plans.
• Form 5500 annual report, reconciliation, and schedules for welfare benefit plans.
OPERATIONAL MATTERS THE IRS MAY REVIEW (not all-inclusive)
• Code § 125 qualification issues generally (e.g., existence of a written plan document prior to
beginning of operation, and absence of deferred compensation issues).
• Eligibility and discrimination requirements (e.g., review of nondiscrimination requirements for
cafeteria plan and component plans).
• Premium -only features (e.g., imputed income for group tern life coverage in excess of $50,000,
and appropriate treatment of dependent life).
• Participant elections (e.g., confirming that elections were made before the period of coverage
and are irrevocable, and that election changes are consistent with applicable regulations).
• Health FSA issues (e.g., Code §213 status of reimbursed claims, no insurance premiums being
reimbursed, expenses are incurred only during the period of coverage, claims substantiation, and
compliance with uniform coverage risk rule).
• DCAP issues (e.g., expenses are for employment-related eligible child-care expenses, expenses
are paid to a dependent care provider, and claims substantiation).
• FSA forfeitures.
• Contributions (e.g., review wire transfers and schedule of contributions and deposits are
consistent with ERISA rules).
• Employment taxes (e.g., amounts are treated properly for FICA/FUTA purposes).
• SPDs for underlying welfare benefit plans are distributed to participants.
SELF -AUDIT CHECKLIST
To help prepare for a possible IRS or DOL audit, cafeteria plan self -audits should be conducted
periodically. A self -audit is a voluntary review by the plan sponsor of the cafeteria plan and its
component welfare benefit plans for the compliance with legal requirements. The goal is to identify
and correct any legal compliance problems in advance of a governmental audit or lawsuit. This
provides an opportunity to take corrective action. The self -audit should include a review of the plan
document and administrative procedures as well as discussions with plan participants, just as the IRS
will do if they audit your plan.
Good internal communication is crucial to surviving an audit. If you are part of a large corporation
with offices across the U.S., you should ensure that all human resource personnel and others who
work with the cafeteria plan are kept abreast of changing IRS rules and regulations. They should
also compare the way they are administering the plan with the plan document to make sure that they
are in compliance. Although the § 125 regulations are not final, the IRS has indicated that audits of
plans will be based both on the final regulations and the remaining proposed regulations.
1. Cafeteria Plan Document (including Amendments)
Obtain copies of the cafeteria plan document and all amendments; each should be properly
adopted by the appropriate entity and executed and dated by a duly authorized representative of
the plan sponsor.
Identify the plan name, plan number, sponsoring employer, and any participating employers
(e.g., controlled group members and affiliates);
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• Does the separate, written plan document contain all required provisions to comply with Code §
125 and applicable regulations (e.g., description of benefits, coverage period, eligibility rules, the
election period, general irrevocability rule, permitted exceptions to that rule, and effective
period, manner in which employer contributions are made, maximum salary reductions
available, and the plan year)?
• Does the written plan provide that participants may choose among two or more benefits
consisting of cash and qualified benefits (e.g., include salary reduction)?
• Are the benefits offered under the plan "qualified benefits"?
• Was the plan adopted before beginning operation?
• Does the plan operate in a manner to defer compensation or include any deferred compensation
features other than Code § 401(k) deferrals or grace periods as permitted under IRS guidance? If
a grace period is offered, is it reflected in a plan amendment that was adopted before the end of
the plan year to which the first grace period relates?
• Has the plan been updated to reflect the IRS permitted election change regulations and FNMA
regulations?
• Has the plan been updated to reflect the changes made by WFTRA of 2004 and technical
corrections legislation (e.g., changes in definition of "dependent' and "qualifying individual'
and elimination of the requirement to maintain a household under Code § 21)?
• If the plan offers a cash -out option, have applicable FLSA and HIPAA issues been considered?
• Is a defined contribution health plan (other than a health FSA) offered, directly or indirectly, in
conjunction with the cafeteria plan?
• Are health insurance premiums being reimbursed that have already been paid for with pre-tax
dollars?
• Does the plan offer benefits to domestic partners on a tax -favored basis?
• If the plan sponsored by a sole proprietorship, partnership, or Subchapter S corporation, are the
self-employed individuals participating?
• Is the plan administered according to the plan document and disclosures to participants? Any
discrepancies between the plan document and the plan in operation should be alleviated either by
a plan amendment or a change in plan operation.
• If the cafeteria plan is a government or church plan, have you considered compliance with the
special rules that apply (e.g., state law for government plans)?
• If retirees are participating in the cafeteria plan or any of the medical benefits, are distributions
used from a qualified retirement plan funding benefits'under the cafeteria plan?
• Has your attorney reviewed the cafeteria plan in the last two years?
2. Premium -Only Plan Document (including Amendments)
• Is income imputed for participants with more than $50;000 of group term life insurance
coverage?
• Is dependent life, universal life, or long term care offered through the plan?
• If disability premiums are paid pre-tax, are the benefits being property treated as taxable benefits
and are FICA taxes matched for the first six months?
• Are benefits not provided by the employer permitted to be paid through the plan (e.g., does the
employer reimburse premiums for individual insurance policies)?
3. Health FSA Plan Document (including Amendments)
• Is the Health FSA incorporated into the cafeteria plan document? If not, obtain copies of the
Health FSA plan document and all amendments; each should be properly adopted by the
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• Identify the plan name, plan number, sponsoring employer, and any participating employers
(controlled groups and affiliates).
• Does the plan document contain all provisions required to comply with Code § 105, Treas. Reg.
§ 1.125-2, Q/A-7, and other applicable regulations?
• Has the plan been updated to reflect changes in the Code's definition of "dependent" made by
the Working Families Tax Relief Act of 2004 (WFTRA)?
• Are reimbursements for health care expenses made only for eligible medical care expenses under
Code § 213?
• Is the uniform coverage rule properly applied?
• Are reimbursements made only for expenses incurred during the coverage period?
• Are reimbursement request forms appropriately completed (signed, blanks filled in, etc.)?
• Is the `arse or lose" rule enforced?
• Are health FSA balances only used for medical care expense reimbursement and not for other
plan benefits?
• Was the plan adopted before beginning operation (e.g., before any expenses were reimbursed)?
• Are forfeitures used in accordance with ERISA and applicable regulations?
• Is the Health FSA compliant with COBRA (e.g., providing required notices, tailoring the forms
to the Health FSA, etc.)?
• Is the Health FSA compliant with ERISA (e.g., ERISA claims procedures, plan asset and
exclusive benefit rules, named fiduciary, etc.);
• Is the Health FSA compliant with HIPAA's portability requirements (e.g., certificates of
creditable coverage, special enrollment provisions), if applicable?
• Is the Health FSA compliant with HIPAA's administrative simplification rules (e.g., are business
associate agreements in place with all outside entities handling PHI)? Has a notice of privacy
been distributed to plan participants? Is the plan compliant with EDI and security requirements
governing electronic information?
• Is the Health FSA compliant with other laws regarding release of personal financial or medical
records for personal health information (PHI) (e.g., Gramm -Leach -Bliley Act)?
• Is the Health FSA compliant with other applicable group health plan mandates, such as FMLA,
USERRA, Mental Health Parity Act, Newborn and Mothers' Health Protection Act, Woman's
Health and Cancer Rights Act, Medicare Secondary Payer rules, qualified medical child support
order (QMSCO) rules, etc.?
• If a merger or acquisition is in process, does the treatment of Health FSA balances comply with
IRS guidance?
• Is the Health FSA administered in accordance with the plan document and disclosures to
participants?
4. DCAP Document (including Amendments)
• If the DCAP is not incorporated into the cafeteria plan, obtain copies of the plan document and
all amendments, and verify that each is properly adopted by the appropriate entity and executed
and dated by a duly authorized representative of the plan sponsor.
• Identify the plan name, plan number, sponsoring employer, and any participating employers (e.g.
controlled group members and affiliates).
• Does the plan document contain all provisions required to comply with Code § 129 and
applicable regulations?
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• Has the plan been updated to reflect the changes to Code § 21 made by WFTRA and WFTRA
technical corrections legislation (e.g., changes in the Code's definition of"qualifying individual"
and elimination of requirement to maintain a household)?
• Is reasonable notice of availability provided to employees?
• Are reimbursements made only for qualified employment-related expenses, only for care
provided by a qualified dependent care provider, and only for expenses incurred during the
coverage period?
• Are reimbursements ever made before the services claimed have been provided?
• Are reimbursement request forms appropriately signed and the blanks filled in?
• Is the "use or lose" rule enforced?
• Is the income exclusion limited to the smallest of $5,000 or the employee's earned income, or
the spouse's earned income?
• Has the DCAP information been included on the participants' W-2 due by January 31?
• Are DCAP balances used only for dependent care expense reimbursements and not for other
plan benefits?
• Was the plan adopted before beginning operation (e.g., before expenses were reimbursed)?
• Are forfeitures used in accordance with IRS regulations?
• Is the DCAP administered in accordance with the plan document and disclosures to participants?
5. Other Component Welfare Benefit Plan Documents (including Amendments)
• Obtain copies of the welfare benefit plan documents and all amendments; each should be
properly adopted by the appropriate entity and executed by a duly authorized representative of
the plan sponsor.
• For each plan, identify the plan name, plan number, sponsoring employer, and any participating
employers (e.g., controlled group members and affiliates).
6. Board Resolutions and Administrative Committee Materials
• Obtain board resolutions regarding the cafeteria plan and all component plans (e.g., adopting the
plan and amendments, authorizing actions on behalf of the plan sponsor). Keep the resolutions
with the plan document.
• Ensure that any participating employers are tax affiliates and have properly adopted the plan for
their employees.
• Obtain administrative committee minutes or other administrative guidelines regarding the
cafeteria plan and any component welfare benefit plans.
7. SPDs and Other Disclosures and Communications
• Obtain copies of all SPDs, policy statements, employee handbooks, enrollment packages,
memoranda, and other materials that describe the benefits under the cafeteria plan and under any
component plans.
• If an SPD is required, is it provided to an employee within 90 days after the date the employee's
participation commences and does it meet other timing requirements?
• Are SPDs, summaries of material modifications (SMMs), and summary annual reports (SARs)
distributed in accordance with ERISA requirements?
• Does the SPD contain all applicable provisions (e.g., as required under DOL regulations) and
does the SPD conform to the terms of the plan?
• Have the disclosure materials for the DCAP been updated to reflect the increase in the dependent
care tax credit under Code § 21 that became effective in 2003?
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• Review information requests, if any, from participants and beneficiaries and determine whether
responses are timely.
S. Claims Forms for Health FSA and DCAP
• Is the actual claims substantiation adequate, including receipts provided and a participant
statement that the claim is not reimbursable under any plan?
• Are claims forms appropriately completed (signed, filled in, etc.)?
• Obtain a detailed description (or flowchart) of claims processing procedures for each type of
plan benefit.
• Review a year-end summary of claims and benefit payment information, documentation of any
denied claims, and resolution of any appeals.
9. Other Documentation
• Obtain and review copies of other documents incorporated by reference in any plan document
(e.g., claims procedures, QMCSO procedures).
• Review any VEBA documents (e.g., trust, Form 1024 exemption and determination letter, and
forms 990).
10. Eligibility
If any individuals are excluded from the cafeteria plan or any of its component plans, are those
exclusions permitted under the plan document and applicable law?
List the employee groups that are eligible and those that are not eligible to participate in the
cafeteria plan and each component plan (including employees of all controlled group members
and affiliates).
List any individuals who are not employees but actually participate in the plan (e.g., independent
contractors, non-employee directors).
11. Participant Elections
• Do the contents of the plan's election/salary reduction form meet applicable requirements?
• Have you received election/salary reduction forms for all participants in the cafeteria plan and its
component plans?
• Are election/salary reduction forms completed appropriately (e.g., signed, filled in, etc.)?
• If negative elections are used for enrollment, are the participants given sufficient notice of their
right to opt out of the plan?
• Are elections made prior to the coverage period?
• Are election changes being administered in accordance with applicable regulations (e.g., are
elections irrevocable once the coverage period has begun unless a change is allowed as an
exception to the irrevocability rule)?
• Is the plan being administered in accordance with the IRS election change regulations and
FMLA regulations?
• If evergreen elections are used, are participants given sufficient notice of their right to change
their election?
• Are rehired employees allowed to change elections after being let back in the plan?
• Are election change confirmation forms, if any, accurate?
• Completed, signed election forms should be on file for all employees. It is recommended that an
employee sign either an election to participate or a waiver of participation form when they are
ADMINISTRATION 1 37
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• The IRS may ask for proof that a particular employee chose not to participate in the plan. If there
is no signed waiver of participation, it may be difficult to prove that the plan was offered to this
employee.
12. Contributions
Do you maintain a schedule of employer and employee contributions (including insurance
premiums paid)?
Are salary referrals and other contributions timely deposited?
13. Nondiscrimination Testing
• For the cafeteria plan, have the Eligibility, Contributions/Benefits, and Key Employee
Concentration tests been run and passed?
• For the Health FSA, have the Eligibility and Benefits tests been run and passed?
• For the DCAP, have the Eligibility, Contributions and Benefits, 5% Owner Concentration, and
55% Average Benefits tests been run and passed?
• Have the nondiscrimination tests been run and passed for other component plans, if required
nondiscrimination testing for the group term life insurance plans)?
• Are any tax adjustments necessary as a result of violation of nondiscrimination requirements?
14. Recordkeeping and Reporting
• Are plan records and documents being kept for the periods prescribed by law?
• If electronic recordkeeping is used, are records maintained in a manner that allows ready
inspection? Are electronic records readily convertible into paper copy as necessary to satisfy
reporting requirements?
• Have all Form W -2s been sent to participants as required?
• Do Form W -2s include dependent care amounts?
• Have all Form 5500s (Return/Report of Employee Benefit Plan) been filed, if required, for
component welfare benefit plans, and do you have copies?
• Have all Form 990s (Return of Organization Exempt from Income Tax — For VEBA) been filed,
if required, and do you have copies?
• Did any participant receive reimbursements exceeding the health FSA or DCAP plan limits?
15. TPA Relationships and Documents
• Obtain a list of the parties that administer, maintain, and update the records of the cafeteria plan
and each of its component plans (e.g., TPAs, recordkeepers, etc.) and a description of their
responsibilities.
• Review the banking arrangements for each plan (including bank account numbers and the type
of benefit paid through each account).
• Does the sponsoring employer provide a bank account for the TPA to pay claims and benefits
under the DCAP, health FSA or other benefit plans?
• Obtain copies of insurance policies for any insured benefits?
• Confirm that fidelity bonds have been obtained as appropriate.
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• Review third -party service provider contracts (e.g., claims administration or administrative -
services -only contracts).
16. Employee Payroll and Employment Taxes
• Obtain employee payroll and benefit plan records, including a reconciliation between gross
income and Form W-2 compensation (identifying pre-tax items) for a representative sample of
employees who participate in most plan benefits.
• Review Form W -2s for various items (e.g., to ensure that no participant received DCAP
reimbursements of more than $5,000 and that amounts were treated properly for FICA/FUTA
purposes).
• Cafeteria plan deferral contributions are not subject to FICA, Federal taxes, State taxes (except
for New Jersey and Pennsylvania) and Federal Unemployment Tax.
• Check with the insurance carrier or state insurance office to determine whether cafeteria plan
deferral contributions are considered wages for workers compensation purposes. Also, states
vary with regard to the amount that should be included for state unemployment.
If you perform a self -audit of your cafeteria plan and find problems, you have two options:
1. Do Nothing - This is always the wrong decision. The reason for a self -audit is to help you learn
what is wrong with your plan and make an attempt to correct any problems.
2. Learn from the Past and Change Procedures - If you have made some mistakes in the past,
don't let the same mistakes happen again. Put policies or procedures in place to prevent the same
problems from occurring again. If the mistakes in the past can be fixed, then every attempt
should be made to correct those past errors.
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GUIDELINES FOR DETERMINING §125 ELIGIBILITY
"C" CORPORATION:
SUBCHAPTER "S" CORP:
PARTNERSHIP:
SOLE PROPRIETORSHIP:
LIMITED LIABILITY COMPANY
All employees are eligible
All employees are eligible. More than 2%
shareholders are not eligible. The employed
spouse, children, grandchildren and parents
of a more than 2% shareholder cannot
participate in the Subchapter S corporation's
cafeteria plan due to owner{hip attribution
rules.
All employees are eligible. No partners are
eligible. The employee/spouse or other
family member of a partner may participate
provided that they are bona fide employees,
and do not themselves have ownership
interests in the employer (e.g., under state
community property laws). It is
recommended that the facts of each
individual situation be carefully analyzed in
order to determine whether a spouse or
family member may participate.
All employees are eligible. No owner is
eligible. The employee/spouse or other
family member of a self-employed
individual may participate provided they are
bona -fide employees and do not themselves
have ownership interests in the employer
(e.g., under state community property laws).
It is recommended that the facts of each
individual situation be carefully analyzed in
order to determine whether a spouse or
family member may participate.
All employees are eligible. For federal tax
purposes, LLCs are generally treated as
partnerships; therefore, members/owners
cannot participate in a cafeteria plan. [See
treatment of spouses and other family
members for partnerships, above.] If the
LLC is treated as a corporation for tax
purposes, then the owner/member can
participate. How the operating agreement is
set up for taxation purposes is key in
determining eligibility for participation.
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SECTION V
NONDISCRIMINATION TESTING
In General
The tax laws contain several rules that prohibit discrimination in your plan. Section 125 of the
Internal Revenue Code states that the plan cannot be discriminatory as to eligibility,
contributions and benefits, and key employees can receive no more than 25% of the benefits
under the plan. If the plan is found to be discriminatory, highly compensated and key employees
cannot exclude their benefits from taxable income. In addition to the three overall
discrimination tests for the cafeteria plan, benefits or benefit plans offered under a cafeteria plan
must also satisfy non-discrimination rules applicable to that benefit or 'benefit plan. For
example, Code § 129 has non-discrimination rules for dependent care assistance plans, Code §79
has non-discrimination rules for group term life insurance plans, and Code §105(h) has non-
discrimination rules for self-insured medical reimbursement plans.
A plan does not necessarily have to allow all employees to participate in the plan but the plan
cannot discriminate in favor of the prohibited group (highly compensated ["HCE"] and key
employees). However, the discrimination tests must include all employees of the employer and,
in some cases, leased employees and employees of affiliated companies. Your tax and legal
advisors should be consulted as to the definition of "employee" for your plan.
It is suggested that testing should be performed prior to the beginning of the plan year, several
months before the end of the plan year so that if testing problems appear, there is still time to
make corrections before the end of the plan year, and also after the end of the plan year so that
the testing can be documented and retained to show, if audited, that the plan passes the
appropriate tests.
The first step in the testing process is to define three groups:
1. Employees — determine which individuals must be included and those employees that may be
excluded;
2. Highly Compensated Participants (HCEs) for purposes of the Eligibility and Contributions
and Benefits tests, define which individuals are Highly Compensated Participants:
• An officer;
• A shareholder owning more than 5% of the voting power or value of all classes of stock
of the employer;
• Highly compensated based on compensation level, defined by Code §414(c) to mean (a)
an employee who earns in excess of $110,000 (for 2010) in the prior plan year [indexed
each year], and if elected by the employer, was in the top paid group of employees (i.e.,
top 20% of employees based on compensation*), or (b) a more than 5% owner of the
employer at any time during the current or preceding plan year, applying the attribution
rules of Code §318;
• A spouse or dependent (within the meaning of Code §125(e)(1)(D)) of that individual
described above.
'If the top -paid 20% is chosen, it applies for all subsequent years unless changed by employer, and must be applied
consistently over all plans (both retirement and non -retirement).
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(These definitions have been simplified for the purposes of this Guide. The applicable Internal Revenue
Code Sections should be consulted for the full definition. The income levels used to determine HCEs and Key
employees are indexed for inflation and thus may change from year to year.)
3. Key Employees — determine which individuals are key employees (IRC §416(1)):
A key employee is basically an employee who during the current year is an officer of the
employer and eams more than $160,000 (for 2010) [indexed each year], or had an
ownership interest in the Employer of more than 5%, or a greater than 1% owner with
compensation over $150,000. Stock attribution rules apply and stock ownership includes
the spouse or lineal ascendants or descendants of an owner.
The 25% Key Employee Test must be completed each year to insure plan compliance.
Governmental plans usually do not have key employees, so the Key Employee Test does not
apply. However, it may apply to a non-profit entity.
Testing the Plan (overall)
Tests should be performed after the annual enrollment but before the plan year begins (and
during the plan year if necessary).
Plans cannot discriminate in favor of Highly Compensated Employees (HCEs) or Key
employees
• Three overall cafeteria plan tests: Eligibility to Participate, Contributions and Benefits
and Key Employee Concentration.
• Two tests for Health FSA: Eligibility to Participate and Benefits.
• Four tests for Dependent Care: Eligibility to Participate, Contributions and Benefits,
25% Owner Concentration and 55% Average Benefits.
• Two tests for Group Term Life: Eligibility to Participate and Contributions and Benefits.
If the plan is discriminatory, HCEs and Keys lose safe harbor from constructive receipt.
Test all related "controlled groups" of employers together (whether participating in same
plan or not)
Questions to ask:
• Who is the employer? (apply controlled group rules)
• Who are members of the prohibited group? When is an employee an HCE or Key
employee?
• Does the plan have any "red flag" design features to watch out for?
• When must testing be performed? (see above)
• If a test fails, can corrections be made?
Eligibility to Participate Test
Employers should consider the following basic questions to determine if the eligibility test can
be passed:
• Who is a non -highly compensated employee (NHCE)?
• What level of participation by NHCEs is enough?
• What does it mean to "benefit" from the plan?
• Which employees are eligible?
• Which employees must be included for testing purposes?
• What group of entities constitutes the employer?
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A determination must be made as to whether enough non -highly compensated employees are
eligible to benefit from the plan. The plan should not be discriminatory as to eligibility to
participate if it meets all three of the following requirements:
a. The plan must meet the Nondiscriminatory Classification Test, which essentially
incorporates certain qualified retirement plan rules under Code §410(b)(2)(A)(1);
b. The same employment requirement applies to all employees and the plan does not
require more than 3 years of employment to participate (the Employment
Requirement); and,
C. Entry into the plan is not delayed (the Entry Requirement).
1. What does the eligibility test say?
The safe harbor does not apply if the plan favors HCEs as to eligibility to participate.
2. What is the test designed to do?
Ensures that a reasonable number of non-HCEs are eligible to participate.
3. If all employees are eligible, does the test need to be run?
No, if all employees are eligible at the same time and the waiting period does not exceed
three years.
4. What cafeteria plans are at risk of failing the eligibility test?
Red Flags:
• Separate cafeteria plans for different employee groups
• Different employment or waiting periods for different groups of employees
• Plans that exclude part-time or hourly employees
• Plans that cover employees in one division or location but not in another
• ' Plans with different entry dates for different groups of employees
5. Who is in the prohibited group?
Highly compensated individuals consisting of: officers, more than 5% shareholders, highly
compensated (compensation of in excess of or $105,000 (for 2008) in the prior plan year
[indexed each year], or, if elected by the employer, employees in the 20% top -paid group),
and spouses or dependents of the previous three categories.)
6. Who must be included in the testing group?
All employees of the plan sponsor and any employees of related employers.
7. Who can be excluded from the testing group?
The conservative approach is to exclude no one; however, some employers exclude
employees described in Code 410(b) [i.e., the plan benefits employees who qualify under a
reasonable classification established by the employer, and the classification of employees is
nondiscriminatory] and/or those who have not yet met the waiting period.
8. What are the mechanics of the eligibility test?
A 2 -part nondiscriminatory classification test is applied requiring (1) a bona fide business
classification for any exclusion, and (2) a sufficient ratio of non-HCEs eligible to HCEs
eligible (a numeric test).
9. Are there any safe harbors or exceptions?
An eligibility classification will not be discriminatoryif the plan meets certain requirements
(employment requirement, entry requirement and nondiscriminatory classification test); also
not discriminatory if under a collective bargaining agreement.
Contributions and Benefits Test
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(Availability, Utilization and.Operation)
Availability Test: the plan must give each participant an equal opportunity to select
nontaxable qualified benefits, e.g., if all employees are eligible for dental coverage, but only
the HCEs are eligible for health coverage, the availability test would not pass.
Utilization Test: if the benefits are disproportionately received by the HCEs, even if they are
made available to everyone, the utilization test will not pass.
Operation -Test: the plan cannot discriminate in favor of HCEs in actual operation, e.g., a
plan's duration or a benefit in the plan coincides with the period that HCEs utilize the plan.
Red Flags:
• Plan bases benefits on years of service or percentage of compensation
• Employer with a single plan varies benefits contributions and rates for employees in
different geographic locations
1. What does the contributions and benefits test say?
The safe harbor does not apply if the plan discriminates in favor of HCEs as to contributions
and benefits (e.g., the cafeteria plan does not discriminate where qualified benefits and total
benefits do not discriminate in favor of highly compensated participants),
2. What is the test designed to do?
Ensures that contributions and benefits are available on a nondiscriminatory basis and that
HCEs do not select more nontaxable benefits than non-HCEs do.
3. Who is in the prohibited group?
Highly compensated participants (e.g., only those that participate in the plan) which are the
following employees: officers, more than 5% shareholders, highly compensated ($105,000
for 2008) in prior plan year, and, if elected by Employer, in the top 20% paid group), and
spouses or dependents of these categories.
4. Who must be included in the testing group?
Only those employees who are actually eligible to select benefits under the plan and, if
applicable, to make salary reductions, to pay for those benefits.
5. What benefits are tested?
Non-taxable benefits that the Code allows employers to offer under a cafeteria plan, such as
medical and dental, and, total benefits (those qualified benefits plus cash or other taxable
benefits) available under the plan.
6. Are there any safe harbors or exceptions?
There is a collectively bargained plan exception. Also, a plan that provides health benefits
will not be treated as discriminatory if certain conditions are met.
Key Employee Concentration Test
1. What does the key employee concentration test say?
Nontaxable benefits provided to key employees cannot exceed 25% of the benefits provided
to all employees.
2. What is the test designed to do?
Ensures that Keys don't receive more than 25% of the total benefits under the plan.
3. Who is in the prohibited group?
Key employees are in the prohibited group, defined as: officers earning more than
$160,000 (for 2010) [indexed each year], more -than -5% owners, more -than 1% owners
with compensation over $150,000. Stock attribution rules apply.
4. Who must be included in the testing group?
Only plan participants who have elected nontaxable benefits are included in the test.
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5. What are the mechanics of the key employee concentration test?
Determine the total pre-tax benefit (employer and employee funding combined) and
ascertain whether Keys receive more than 25%.
6. Are there any safe harbors or exceptions?
Collectively -bargained plan exception, and, the Test does not apply to cafeteria plans
maintained by governmental entities.
The separate plans under the cafeteria plan may also need to be tested, including the Health FSA,
the Dependent Care Plan, and the group term life plan, as follows:
Health FSA Tests — (Code & 105)
A Health FSA must satisfy two tests:
• Eligibility Test — a Health FSA cannot discriminate in favor of HCEs as to eligibility to
participate.
• Benefits Test — the benefits provided under a Health FSA must not discriminate in favor
of HCEs.
A highly•compensated individual as defined in Code § 105(h) is different from an HCE in Code
§ 414(q). See the definition for Health FSAs below in #2 of the Eligibility Test questions.
Eligibility Test — Are enough non-HCEs benefiting from the Plan?
Generally health FSAs are funded with salary reduction dollars, but can also be funded with flex
credits or other employer dollars. When applying the Code Sec. 105(h) eligibility tests to health
FSAs the threshold question for all three alternative Eligibility Tests is what it means to
"benefit" under a Health FSA. Can an employee be "eligible" to elect coverage or must the
employee actually participate in coverage and make contributions? In the view of most experts,
based on the literal language of Code § 105(h), is in order to "benefit" under a health FSA , an
employee must have elected coverage or have received free coverage by plan design. Merely
being "eligible" is not enough.
1. What is the test designed to do?
Ensures that a reasonable number of non-HCEs benefit from the plan. If all non -excludable
employees are eligible, does the eligibility test need to be run?
2. Who is in the prohibited group?
Highly compensated individuals (called "HCEs"), which consist of the five highest paid
officers; more than 10% shareholders, and the highest paid 25% of all non -excludable
employees.
3. Who must be included in the testing group?
Non -excludable employees of the plan sponsor and tax affiliates.
4. Who may be excluded from the testing group?
Employees who have not completed three years of service; have not attained age 25; are part-
time or seasonal; are collectively bargained; or, are nonresident aliens who receive no U.S.
source earned income. These exclusions may not be available if otherwise excludable
employees are eligible to participate.
5. What are the mechanics of the eligibility test?
The plan may pass under any one of three alternate tests:
• the 70% test (the plan benefits 70% or more of all non -excludable employees);
.ADMINISTRATION 45
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• the 70%/80% test (the plan benefits 80% or more of all non -excludable employees who
are eligible to benefit, if 70% or more of all employees are eligible to benefit under the
plan); or,
• the Nondiscriminatory Classification Test (the plan benefits a nondiscriminatory
classification of employees which requires a bona fide business classification for any
exclusion and a sufficient ratio of non-HCEs eligible to HCEs).
A. Health FSA that satisfies any one of these three tests will pass the Eligibility Test. As a
practical matter, when the health FSA is funded exclusively with employee salary reduction,
it is not likely that 70% or more of the non -excludable employees will choose to participate.
Therefore, most health FSAs must satisfy the nondiscriminatory classification test in order to
satisfy the Code Sec. 105(h) eligibility test.
6. Are there any safe harbors or exceptions?
Collectively bargained employees if they are not eligible for the plan.
Benefits Test
Benefits testing will answer the question: are all participants eligible for the same benefits? The
test has two parts: one is testing for discrimination on the face of the plan; the other is testing for
discrimination in operation. The plan will be discriminatory on its face unless all benefits
provided for participants who are HCEs are provided for all other participants. The IRS has
ruled privately that a plan may be discriminatory if required contributions cause a coverage
difference between HCEs and non-HCEs. The "discriminatory in operation" test is a facts and
circumstances test (e.g., discrimination would occur if the duration of the Health FSA coincides
with the period during which an HCE utilizes it).
For a Health FSA to be non-discriminatory:
• The required employee contributions must be identical for each benefit level;
• The maximum benefit level that can be elected cannot vary based on:
• Percent of compensation
• Age, or
• Years of service.
• The type of medical expenses reimbursable must be identical for all participants; and,
• Disparate waiting periods cannot be imposed.
1. What is the benefits test designed to do?
Ensures that HCEs are not getting better benefits or are not required to make lower
contributions.
2. Who is in the prohibited group?
Highly compensated individuals who actually participate in the plan. Highly compensated
individuals consist of the following: the five highest paid officers; more than 10%
shareholders; and the highest paid 25% of all employees.
3. Who must be included in the testing group?
Only employees participating in the plan.
4. What are the mechanics of the benefits test?
In order to satisfy the benefits test, all benefits provided to the prohibited group (and their
dependents) must be provided to all other participants. Where elective benefits are available,
the test will be satisfied if (a) all participants are eligible for the optional benefits; and (b)
there is either no required contribution for the additional benefit or the contribution is
identical for all participants.
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In summary, neither of the Health FSA tests is based on usage; therefore, the eligibility test
will pass if at least 70% of the employees are eligible to participate in the FSA. The
benefits test will pass if the stated maximum in the plan document for the Health FSA is
the same for all employees.
Caution: While a Health FSA may pass the Health FSA tests, there is, some risk that the
cafeteria plan itself may not pass the Key Employee Concentration Test, particularly if the
employer has a small number of employees and key employees are participating in the
Health FSA.
Dependent Daycare Plan (DCAP) Tests (Code $129)
There are four DCAP tests:
• Eligibility Test
• Contributions and Benefits Test
• More -Than -5% Owner Test
• 55% Average Benefits Test
If the DCAP fails any one of the four tests, then the benefits provided to the HCEs will be
included in their gross income.
For purposes of the Code § 129 tests, Highly Compensated Employees (HCEs) are defined in
Code § 414 (q). In general, HCEs are:
• More -than -5% owners in the current or preceding plan year, applying the Code § 318
rules of attribution; or,
• For the preceding plan year, had compensation in excess of or $110,000 (for 2010), and,
if elected by the employer, was also in the "top -paid" group (generally constituting the
top 20% by compensation).
Eligibility Test
1. What does the Eligibility Test say?
The DCAP shall benefit employees who qualify under a classification found not to be
discriminatory in favor of HCEs or their dependents.
2. What is the test designed to do?
The test is designed to ensure that a reasonable percentage of non-HCEs are eligible to
participate in the DCAP.
3. If all employees are eligible, do I need to run the eligibility test?
If all employees are eligible to participate in the DCAP, the plan will automatically pass the
Eligibility Test.
4. What DCAPs are at risk of failing the eligibility test?
Employers with plans that do not cover all employees are at risk of failing the Eligibility
Test.
5. Who is in the prohibited group?
HCE's within the meaning of Code § 414(q) and their dependents.
6. Who must be included in the testing group?
All employees of the plan sponsor and any other business that is a member of a related
group of corporations or businesses.
7. Who may be excluded from the testing group?
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Employees described in Code § 129(d)(9) — employees who have not attained age 21 or
completed a year of service and are excluded from the plan, as well as certain collectively
bargained employees.
8. What are the mechanics of the eligibility test?
A two-part Nondiscriminatory Classification Test is applied requiring a bona fide business
classification for any exclusion; and, a sufficient ratio percentage of non-HCEs eligible to
HCEs eligible. The cafeteria plan eligibility test can be run, using the Code § 414(q) HCE
definition.
9. Are there any safe harbors or exceptions?
Collectively bargained employees.
Contributions and Benefits Test
1. What does the contributions and benefits test say?
Contributions and benefits provided under a DCAP may not discriminate in favor of HCEs
within the meaning of Code § 414(q) or their dependents.
2. What is the test designed to do?
Ensures that HCEs or their dependents aren't eligible to receive better benefits or make
lower contributions for equal benefits than non-HCEs.
3. Who is in the prohibited group?
HCEs and their dependents.
4. What are the mechanics of the Contributions and Benefits Test?
The test is subjective, requiring that HCEs and their dependents not be offered better
benefits or equal benefits on better terms. The test looks at the contribution and benefit
level for the different types of assistance available under the plan. The test examines the
benefits and contributions received under the DCAP and whether prohibited group members
participating in the DCAP receive a better benefit or contribution than do the other
participants.
The More -Than -5% Owners Concentration Test
1. What does the more -than -5% Owners Concentration Test say?
Not more than 25% of the amounts paid or incurred by the employer for dependent care
assistance during the year may be provided for the class of individuals who are shareholders
or owners (or their spouses or dependents) each of whom (on any day of the year) owns
more than 5% of the stock or of the capital or profits interest in the employer.
2. What is the test designed to do?
Ensures that the more -than -5% owners and their family members do not receive more than
25% of the DCAP benefits.
3. Who is in the prohibited group?
Shareholders or owners owning more than 5% of the employer and their spouses and
dependents. An individual is considered to be a more -than -5% shareholder or owner if he or
she owns more than 5% of the stock or the capital or profits interest in the employer on any
day of the year.
4. What are the mechanics of the more -than -5% owners concentration test?
DCAP benefits provided to the more -than -5% owners cannot exceed 25% of the benefits
provided for all employees under the plan.
55% Average Benefits Test
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This test is one of the most important of the DCAP discrimination tests. It is a utilization test,
because it considers who is taking advantage of or actually using the benefit.
1. What does the 55% average benefits test say?
A plan meets the requirements of this test if the average benefits provided to employees who
are not HCEs under all plans of the employer is at least 55% of the average benefits
provided to HCEs under all plans of the employer.
2. What is the test designed to do?
Ensures that HCEs do not receive more than 55% of the average benefits compared to the
average benefits of the non-HCEs.
3. Who is in the prohibited group?
HCEs are the prohibited group. Code § 414(q) definition of HCEs is applied, subject to the
exceptions below.
4. Who must be included in the testing group?
All eligible employees, even if excluded under the DCAP Eligibility Test.
5. Who may be excluded from the testing group?
For purposes of running this test, the plan may exclude:
• employees who have not completed one year of service (as defined in Code § 410(a)(3),
by the end of the year, if the plan excludes such employees from participation;
• employees who have not reached their 21st birthday by the end of the year, if the plan
excludes such employees from participation;
• employees who earn less than $25,000 a year; or,
• employees in a collective bargaining unit who are excluded from participation.
6. Are there any safe harbors or exceptions?
Certain collectively bargained employees.
There is a 1 -year look -back (at the previous year's compensation) to determine who qualifies as
an HCE.
Group Term Life Insurance Nondiscrimination Tests
An employee may exclude from income up to $50,000 of employer-provided group term life
insurance. Coverage in excess of $50,000 that is provided by the employer at no cost to the
employee is taxed at the IRS "table value". Coverage in excess of $50,000 that is paid for by an
employee on a pre-tax basis under a Sec. 125 plan is taxed as the IRS "table value". If
employees pay for the coverage with after-tax dollars, there could be taxable income to the
employee for coverage in excess of $50,000, especially if the rates straddle the Table 1 rates.
When that happens, employees are taxed on the table value less the after-tax amounts paid.
If group term life coverage is discriminatory, the exclusion from income will be lost for the first
$50,000 of coverage for key employees, and, in addition, the excess coverage will be taxed at the
greater of the table value or the actual cost.
What is employer-provided group term life insurance?
Group term life insurance provides a general death benefit that is excludable from income under
Code Sec. 101(a). Group term life must be provided to a "group of employees" defined as:
• at least 10 full time employees
• the 10 -employee rule does not apply where (1) the insurance is provided to all full time
employees of the employer, or if evidence of insurability affects eligibility, to all full
time employees who provide evidence of insurability satisfactory to the insurer, and (2)
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The life insurance must be provided under a policy carried directly or indirectly by the employer.
A policy of life insurance is carried directly or indirectly by an employer for purposes of Code
§79 if (1) the employer pays any part of the cost directly or through another person; or (2) the
employer arranges for payment of the cost by its employees and charge at least one employee
less than the cost of his insurance as determined under Table 1 and charges at least one employee
more than the cost of his insurance, determined in the same manner.
The amount of the insurance provided to each employee is computed under a formula that
precludes individual selection. The formula must be based on factors such as age, years of
service, compensation or position. This requirement may be satisfied even if the amount of
insurance is determined under a limited number of alternative schedules based on the amount
each employee elects to contribute. However, the amount of insurance provided under each
schedule must be computed under a formula that precludes individual selection.
Eligibility Test
The plan is discriminatory if it favors key employees as to eligibility to participate. The plan
discriminates in favor or key employees unless it meets the requirements of one of the following
tests:
1. Cafeteria Plan Piggyback. The plan does not discriminate as to eligibility if it is part of a
cafeteria plan meeting the requirements of Code § 125.
2. The 70% Test. The plan does not discriminate as to eligibility if the plan benefits 70% or
more of all employees, including employees of controlled group members. Many
employers will meet this test with ease, and in fact employers should consider this test in
designing their group term life insurance plan so that 70% of all employees are eligible (to
participate), so that the employer never has to concern itself with the data collection and
administrative difficulty of running some of the other eligibility tests.
3. The 85% Test. The plan does not discriminate as to eligibility if at least 85% of all
employees who are participants under the plan are not key employees.
4. The Reasonable Classification Test. The plan does not discriminate as to eligibility if it
benefits employees under a classification set up by the employer and found to be not
discriminatory. Employers would be well-advised to structure the group life plan to meet
any one of the other three eligibility tests listed above, rather than having to deal with the
data collection and analysis involved in the reasonable classification test.
Benefits Test
The type and amount of benefits provided under a group term life plan are discriminatory unless
all benefits available to all participants who are key employees are available to all other
participants (similar to the benefits test for the medical reimbursement plan). If additional
coverage is available to any key employee that is not available to non -key employees, the plan
will be considered discriminatory.
Summary of Nondiscrimination Tests
1. Cafeteria Plan Tests
• Eligibility
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• Contributions and Benefits
• 25% Key Employee Concentration
2. Health FSA Tests (Note: these tests will apply to a major medical plan, if self-funded)
• Eligibility
• Benefits
3. Dependent Day Care Tests
• Eligibility
• Contributions and Benefits
• 25% Owner Concentration
• 55% Average Benefits
4. Group Term Life Insurance
• Eligibility
• Benefits
While it may be necessary to run other non-discrimination tests, American Fidelity only
provides worksheets for the 25% key employee test and the 55% average benefits test for
dependent daycare. There may be a discrimination problem when all employees are either
not allowed to participate or some are given longer waiting periods, and when either highly
compensated employees are given more contributions and benefits, or when highly
compensated employees disproportionately select the benefits.
This is only a summary of some of the testing requirements for Section 125
plans. Please contact your tax or legal advisors for more complete
information concerning your plan.
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SECTION VI
REPORTING & DISCLOSURE REQUIREMENTS
Reporting Requirements
It is important to remember that all premiums (including both employer and employee portion)
paid on a pre-tax basis under the Section 125 Plan are now considered "employer contributions"
for federal income tax purposes. Examples of how reporting may be affected are shown below:
1. Quarterly Federal Tax Return — Form 941
When completing the Form 941 you must follow the instructions carefully, remembering:
Amounts paid under the Section 125 Plan, whether by direct employer
contribution or by salary reduction, are not considered taxable compensation for
federal income tax, FUTA, FICA, and in all states but PA and NJ, state income
taxation purposes.
2. Instructions concerning sick pay or third party sick pay must be carefully
followed if disability income premiums are paid with pre-tax dollars and any
employees have received a benefit from the plan.
2. W-2 Forms
As with the other reports tied to income, W-2 forms for employees may be affected in the
following ways:
1. Gross income for federal and state income tax (except for New Jersey state
withholding and state withholding for Pennsylvania dependent care benefits)
purposes will not include salary reduction amounts under the Section 125 Plan.
2. Income for social security and Medicare tax purposes (FICA) will not include
salary reduction amounts under the plan.
3. Any taxable disability income benefits paid to employees during the tax year must
be included on the W-2 Form as taxable compensation for income tax and FICA
tax purposes. You should receive instructions from your insurance carrier
concerning these amounts.
4. It may be necessary to include taxable amounts for group term insurance in excess
of $50,000 for income withholding and FICA tax purposes.
5. Amounts contributed for dependent care benefits must be reported.
6. Employer HSA contributions must be reported in Box 12, Code W, and if not
excludable from income, must also be reported in Box 1.
3. Disability Income Taxation
If an employee's premium for disability income coverage is paid with pre-tax dollars, the
disability benefit received by that employee is considered taxable income, because premiums
paid for disability coverage under a Section 125 Plan are considered employer -paid premiums
and are not subject to federal income tax. Because of this, any disability income benefit paid to
the employee is considered taxable income and must be reported on Form W-2. The taxable
ADMINISTRATION 52
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income amount can either be included on the employee's regular W-2 form or on a
"supplemental" W-2 form.
If the employee's disability coverage is with American Fidelity or American Public Life, the
employer will receive a monthly report showing disability payments made to employees for that
month and a report showing amounts paid year-to-date.
Should an employee wish to have federal income tax withheld from the benefit, that employee
should submit a W -4S form to the payer (insurance company). The payer will then withhold
federal income tax and report these amounts to the employer.
If the employee's income is subject to FICA tax and the premiums paid for the disability income
coverage were paid with pre-tax or employer contributions, FICA taxes must be withheld from
each benefit check for a six month period. The employer must also match FICA taxes for six
months following the employee's last employment date.
If AFA is the disability income insurance carver, a report will be mailed to the employer
showing the names of the employees receiving benefits, and the amount of FICA withheld. The
employer should then follow the IRS instructions on the reporting of third party sick pay.
Form 5500 Report
Under IRS notice 2002-24, employer/plan sponsors with a Section 125 Cafeteria Plan are no
longer required to file a Schedule F with the annual Form 5500 Report to satisfy the Section
6039D filing requirement. However, an annual Form 5500 Report is still required to be filed
(unless exemptions apply) for plans that are subject to ERISA's Form 5500 filing requirements
for welfare benefit plans. Since health FSAs are welfare benefit plans, they will be subject to
ERISA's filing requirements unless the plan sponsor is exempt from ERISA (i.e., a
governmental entity), or if the plan has less than 100 participants (as long as the plan benefits are
not paid from a trust).
It is extremely important to determine whether your health flexible spending account is subject
to the ERISA filing requirement because the penalties for failure to file are substantial.
There are severe penalties for failure to file an annual report because of ERISA requirements.
For Plans Subject to ERISA Reporting: The Department of Labor may assess a fine of up to
$1,100 per day with no maximum for each day a plan fails to file or properly complete an annual
report.
It is very important that your tax advisor be contacted concerning 5500 annual reports if
your plan is subject to ERISA reporting.
Please consult with your tax advisor to determine if you must file a Form 5500 to meet the
ERISA reporting requirements for your welfare benefit plan or your pension plan.
ADMINISTRATION 53
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SUMMARY OF
REPORTING AND DISCLOSURE REQUIREMENTS
ERISA WELFARE
BENEFIT FILERS
Unfunded and/or Governmental Plans (i.e., any plan funded by a trust
Fully Insured Plans and certain Church and non -church non government
with < 100 participants* Plans Exempt from plans with 100 or more
ERISA participants)
SUMMARY PLAN
DESCRIPTION (SPD) Required7
Yes
No
'Yes
Within 90 days after he or
Within 90 days of after he or she first
Distribution to Participants
she first becomes covered
becomes covered by the plan and
by the plan and within 30
N/A
within 30 days of a request.
days of a request.
At least every 10 years,
At least every 10 years, every 5 years
Update
every 5 years if any
N/A
if any material modification
material modification
SUMMARY OF MATERIAL
Distribute to participants
Distribute to participants within 210
MODIFICATIONS
within 210 days after close
N/A
days after close of plan year in which
of plan year in which
change is adopted.
change adopted.
However, for a material
However, for a material reduction in
reduction in covered
covered services or benefits,
services or benefits,
distribute to participants not later
distribute to participants
than 60 days after the date of the
not later than 60 days after
adoption of the modification.
the date of adoption of the
modification.
SUMMARY ANNUAL REPORT
100 or more participants, Form 5500
(SARS)
due 9 months after the end of the
plan year. In addition to other
N/A
N/A
penalties, the Department of Labor
may assess a fine of up to $110 per
day if administrator fails to respond
to a participant or beneficiary
requests a copy of the required SAR.
When to File
By the last day of the 7th month after the plan year ends
Where to File
File with the PWBA.
*as described in the small welfare plan exemption in DOL Regulation 2520.104-20
ADMINISTRATION 54
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SUMMARY PLAN DESCRIPTION
Your plan may or may not be subject to the ERISA requirement that all employees eligible for
plan participation be given a summary plan description ("SPD") which provides a summary of
some of the provisions of the plan.
Because the requirements are unclear as to whether or not an SPD is necessary for a Section 125
plan, we recommend that you provide your employees with an SPD. Some plans such as
governmental plans (including public schools) are exempt from the reporting and disclosure
requirements of ERISA. You should consult your tax or legal advisors for guidance as to
whether or not you are subject to the reporting and disclosure requirements of ERISA.
The following pages contain sample wording for a Section 125 Plan SPD for your guidance and
for the use of your legal counsel in completing a similar document for your plan. This sample is
for a plan containing only insurance benefits. Be sure that the SPD completed for your plan
contains the information specific to your group and to your plan. Since this SPD refers only to
the Section 125 Plan, you may have other disclosure requirements to meet for the underlying
benefit plans.
All employees should be given a copy of the SPD.
If the plan is materially modified, it will be necessary to modify the SPD.
AMERICAN FIDELITY IS NOT THE PLAN ADMINISTRATOR, BUT MERELY THE
PLAN PROVIDER AND/OR RECORDKEEPER FOR THE FLEXIBLE SPENDING
ACCOUNTS.
Caution & Use Restriction
The sample SPD is for illustrative purposes only. The sample is for a hypothetical
employer that has made many obvious and not -so -obvious plan design and administrative
choices. Because of the many plan and employer specific choices that must be made, this
sample SPD may not be used "as is" for any purpose. American Fidelity makes no
representation or express or implied warranty that this sample when used in a specific
factual situation meets applicable legal requirements.
ADMINISTRATION 55
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THE SECTION 125
FLEXIBLE BENEFIT PLAN
for the
EMPLOYEESOF
(Name of Employer)
Employer's Address:
Employer's Phone:
Employer's Identification Number:
(THIS IS A SAMPLE SUMMARY PLAN DESCRIPTION ("SPD") FORMAT. AN SPD
FOR YOUR PLAN SHOULD CONTAIN INFORMATION PERTINENT TO YOUR
SECTION 125 PLAN. FOLLOW THE INSTRUCTIONS INDICATING WHERE
CERTAIN INFORMATION MAY BE FOUND OR SPECIFIC INSTRUCTIONS ON THE
TYPE OF INFORMATION WHICH SHOULD BE SHOWN ON THE DOCUMENT.
YOU SHOULD CONTACT YOUR ATTORNEY OR OTHER ADVISORS FOR
SPECIFIC INSTRUCTIONS ON THE PREPARATION OF AN SPD.)
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INTRODUCTION
The purpose of this Summary Plan Description is to provide you with a brief description
concerning the Section 125 Flexible Benefit Plan and the benefits available to you under the
plan. Should you have any questions concerning the benefits described in this Summary Plan
Description, you should consult your insurance certificates, policies, or other benefit brochures
provided to you. Further questions concerning benefits or policy statements contained in this
handbook should be referred to the person indicated below:
Name: [Employer's Representative]
Address:
Although the Company currently intends to continue all of the benefits described in this
Summary Plan Description, the Company reserves the right to amend, reduce, or terminate any
of these benefits at any time.
Neither this Summary Plan Description nor the official Plan documents confer any contractual
right to any person to either become or remain an employee of the Company.
This Summary Plan Description summarizes the principal features of the Plan in a general
manner. The terms and conditions of the Plan are contained in the Plan legal document
adopted by the Company. If the provisions of this Summary Plan Description conflict with
those of the Plan, the provisions of the legal Plan document will control.
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TYPE OF PLAN AND CONTRIBUTIONS
What is a Section 125 Flexible Benefit Plan?
It is a benefit plan, sometimes called a cafeteria plan, that allows you, the employee, to
spend benefit dollars for benefits you choose. The benefits that you choose are then paid
for with the benefit dollars available for your use either by your employer or through a
salary reduction agreement with your employer. Salary reduction means that you are
able to use "pre-tax" dollars to pay for certain benefits that you may have previously paid
for with "after-tax" dollars.
What benefits are available under the plan? [See Item F of the Adoption Agreement]
The plan gives you a selection of benefits from which to choose the coverages which
most fit the needs of you and your family. These benefits are listed below: [list benefits
available to your employees under the plan]
Medical Insurance
Dental Insurance
Cancer Insurance
Group Term Life Insurance
Long Term Disability
Short Term Disability
Dependent Care Assistance Account
Health Flexible Spending Account (Health FSA)
Please Note: If you participate in the Health FSA benefit, you will be ineligible to
participate in a Health Savings Account (HSA). HSAs are tax -favored IRA -type trust
accounts created by the Medicare Prescription Drug Improvement and Modernization Act
of 2003, and can be established by eligible individuals covered by high deductible health
plans, beginning January 1, 2004, to pay for certain medical expenses of eligible
individuals, their spouses and/or dependents (as defined in Code Section 152).
What is the maximum dollar amount available for the purchase of benefits under the plan?
[See Item E of the Adoption Agreement]
The method for allocating contribution amounts for the plan and the maximum amount
available for the purchase of benefits is shown below.
Each employee eligible to participate in the plan may authorize the employer to reduce
his or her compensation by the amount needed for the purchase of the benefits elected by
the employee. An election for salary reduction will be made on the benefit election form
completed by the employee.
The maximum amount available to each employee for the purchase of elected benefits
through salary reduction will be $ per month.
ADMINISTRATION 58
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PARTICIPATION ELIGIBILITY
When do employees become eligible to participate in the Section 125 plan? [See Item C of
the Adoption Agreement]
All employees who meet the eligibility requirements will be eligible to participate in the
Section 125 plan. This, however, does not necessarily mean that you will be eligible for
all benefits at the time you are eligible for participation in the Section 125 plan. Some
benefits may have eligibility requirements different from those of the plan. These
requirements, if different from those described in this section, will be described in the
Benefit Description section of this handbook.
All employees that are age _or older and work —hours or more each week are eligible
for Section 125 Plan participation on the first day of the month following _ days of
employment.
Are employees automatically covered under the plan?
No. You must enroll in the plan in order to participate. All eligible employees must sign
an election form for plan participation even if they do not wish to purchase benefits under
the plan.
When do eligible employees enroll in the plan? fSee item D of the adoption agreement for
your plan year datesl
Eligible employees must enroll during the open enrollment period prior to the beginning
of the plan year, which is (month/day) of each year. All employees will
be notified of the open enrollment period.
New employees or employees becoming eligible for plan participation after
(montb/day), must enroll prior to end of the eligibility waiting period. If an employee
does not enroll during this period it will be necessary for the employee to wait until the
next open enrollment period prior to the next plan year to enroll in plan benefits.
PLAN ELECTIONS AND ELECTION CHANGES
How do eligible employees enroll in the plan?
Each employee eligible for plan participation must complete an election form.
Completion of this form is required whether or not an employee wishes to purchase
benefits under the plan. This form must be completed by the beginning of the plan year,
(month/day), or an employee's plan eligibility date.
May benefit elections be changed during the year?
An employee may not change their benefit election during the plan year,
(month/day) through (month/day), unless that change is the result of one of
the qualified events described below and the change is consistent with the reason that the
change was permitted. All changes (except for purposes of birth of new child under
HIPAA) will be effective the fust of the month following the completion of the forms
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required to make the election change and will remain in effect for the remainder of the
plan year.
Circumstances under which election changes may be made:
I. Certain changes in status. An employee may revoke their current election and make a
new election for the remainder of the plan year, provided that both the revocation and new
election are caused by and are consistent with a change in status (as described below). Those
occurrences which qualify as a change in status are:
** a change in your legal status, such as marriage, death of spouse, divorce,
legal separation or annulment;
** a change in the number of your dependents, such as birth, death, adoption
or placement for adoption;
** a change in employment, including any employment status change
affecting benefit eligibility of the employee, spouse or dependent, such as
termination or commencement of employment (must "step back" into
previous election if rehired within 30 days), a change in hours, a strike or
lockout, a commencement or return from an unpaid leave of absence, and
a change in worksite;
** dependent satisfies or ceases to satisfy dependent eligibility requirement,
including attainment of age, student status, etc.;
** residence change of employee, spouse or dependent affecting the
employee's eligibility for coverage.
If you wish to change your election based on a change in status, the change must be consistent
with the change in status. The general test for consistency is whether the requested change is on
account of and corresponding with a change in status that affects eligibility for coverage under
an employer's plan. The plan will resort to this general consistency rule as to when you can add
or decrease coverage. There are also specific consistency tests, as follows:
• Consistency Rule for Loss of Dependent Eligibility
• Consistency Rule for Gain of Coverage Eligibility Under Another Employer's Plan
• Special Consistency Rule for Life, Disability or AD&D Coverage
• Special Consistency Rule for Dependent Care and Adoption Assistance Benefits
In addition to the above listed change of status events, there are other events that may also allow
for a mid -year election change, such as a significant cost change or coverage curtailment, special
HIPAA or COBRA enrollment rights, certain judgments, decrees or orders (QMCSO),
entitlement to Medicare or Medicaid, or absence from work because of a family medical leave
covered by the federal Family and Medical Leave Act (FMLA).
REMEMBER: All election changes must be consistent with the change in benefit or status
and must be necessary or appropriate as a result of the change in status.
Other than the situations described above, when may benefit elections be changed?
During the enrollment period just prior to the beginning of the next plan year.
Once the election form is completed, are employees automatically covered under the
insurance benefits elected?
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No. In most instances an application for insurance coverage must be completed.
Can I stay in the plan if I am absent on a family medical leave?
If you are absent from work on a leave of absence covered by the Family and Medical
Leave Act (FMLA) for periods totaling 12 weeks during the Plan Year, you are entitled
to maintain the coverage you have under the Plan during your absence. Of course, you
must pay the premiums for the coverage during your absence using one of the following
methods:
Prepayment. Under the prepayment option, you may (at your option) increase
your salary reduction in an amount sufficient to cover the premiums that will
come due during the FMLA leave.
Pay-as-you-go. With the pay-as-you-go option, you continue to pay premiums on
a regular basis through the FMLA leave. If you continue to receive your salary
while you are gone, the premiums will be paid with pretax money as if you had
not taken the leave. On the other hand, if your FMLA leave is unpaid and you
choose this option, you will have to reimburse the Plan at regular intervals from
your after-tax funds for the premiums that come due during the leave.
The language above regarding the two payment methods assumes that both the
Prepayment and the Pay-as-you-go methods are offered under the Plan.
PLAN BENEFITS AVAILABLE
Listed below is a description of each of the benefits made available under the plan. This
description is brief. You should consult your actual certificates of insurance, benefit booklets, or
insurance policies for.detailed descriptions of your coverage, limitations, and exclusions. Those
items are a part of this handbook and should be kept with the handbook for easy reference.
For each coverage offered as a benefit under the plan You should include the followinL'
information in the benefit description:
* Eligibility requirements if different from the Section 125 plan;
* Description of options offered under each benefit (i.e., dependent coverage),•
* A brief description of benefits may be included;
* The monthly premium for the coverage and the portion paid by the em to er if
any.
*jInclude in the description of benefits the following sentence if maternity
benefits are provided] : "Group health plans and health insurance issuers offering
group insurance coverage generally, under federal law, may not restrict benefits
for any hospital length of stay in connection with childbirth for the mother or
newborn child to less than 48 hours following a normal vaginal delivery, or less
than 96 hours following a cesarean section. However, Federal law generally does
not prohibit the mother's or newborn's attending provider, after consulting with
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the mother, from discharging the mother or her newborn earlier than 48 hours (or
96 hours as applicable. In any case, plan issuers may not, under Federal law,
require that a provider obtain authorization from the plan or the insurance issuer
for prescribing a length of stay not in excess of the above periods."
CLAIMS FOR BENEFITS
How does an employee file for benefits under the coverage elected?
To obtain benefit payments under the plan you must comply with the rules and
procedures of the particular benefit you elected. If you have questions concerning
insured benefit payments, you should contact the insurance carrier or the party listed at
the beginning of this handbook.
What is the procedure to follow if benefits are denied?
Should you disagree with the payment or denial of your claim, you may request an
additional review by filing a written request in care of the plan's Administrator. You must
file this written request within 60 days after receiving payment or denial.
You will be notified in writing of the final decision within 60 days of receipt of your
request for review. A thorough explanation as to the reason for denial will be furnished.
*[Optional] Some special rules apply to claims under the Medical Insurance, Dental Insurance,
Cancer Insurance and Health FSA benefits, if offered under the Plan. The Administrator is
responsible for evaluating all claims for reimbursement under the Health FSA Plan. The
Administrator will decide your claim within a reasonable time not longer than 30 days after it is
received. This time period may be extended for an additional 15 days for matters beyond the
control of the Administrator, including in cases where a claim is incomplete. You will receive
written notice of any extension, including the reasons. for the extension and information on the
date by which a decision by the Administrator is expected to be made. You will be given 45
days in which to complete an incomplete claim. The Administrator may require such other
evidence as it deems necessary to decide your claim.
If the Administrator denies your claim, in whole or in part, you will be fumished with a written
notice of adverse benefit determination setting forth:
1. the specific reason or reasons for the denial,
2. reference to the specific Plan provision on which the denial is based,
3. a description of any additional material or information necessary for you to complete
your claim and an explanation of why such material or information is necessary, and
4. appropriate information as to the steps to be taken if you wish to appeal the
Administrator's determination, including your right to submit written comments and have
them considered; your right to review (on request and at no charge) relevant documents
and other information, and your right to file suit under ERISA with respect to any
adverse determination after appeal of your claim.
If your claim is denied in whole or in part, you may appeal to the Administrator for a review of
the denied claim. Your appeal must be made in writing within 180 days of the Administrator's
initial notice of adverse benefit determination, or else you will lose the right to appeal your
denial. If you do not appeal on time, you will also lose your right to file suit in court, as you will
ADMINISTRATION 62
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have failed to exhaust your internal administrative appeal rights, which is generally a
prerequisite to bringing suit.
Your written appeal should state the reasons that you feel your claim should not have been
denied. It should include any additional facts and/or documents that you feel support your claim.
You may also ask additional questions and make written comments, and you may review (on
request and at no charge) documents and other information relevant to your appeal. The
Administrator will review all written comment you submit with your appeal.
The Administrator will review and decide your appeal within a reasonable time not longer than
60 days after it is submitted and will notify you of its decision in writing. The individual who
decides your appeal will not be the same individual who decided your initial claim denial and
will not be that individual's subordinate. The Administrator may require such other evidence as
it deems necessary to decide your appeal. If the decision on appeal affirms the initial denial of
your claim, you will be furnished with a notice of adverse benefit determination on review
setting forth:
1. the specific reason(s) for the denial,
2. the specific Plan provision(s) on which the decision is based,
3. a statement of your right to review (on request and at no.charge) relevant documents
and other information,
4. if the Administrator relied on an "internal rule, guideline, protocol, or other similar
criterion" in making the decision, a description of the specific rule, guideline,
protocol, or other similar criterion or a statement that such a rule, guideline, protocol,
or other similar criterion was relied on and that a copy of such rule, guideline,
protocol, or other criterion will be provided free of charge to you upon request," and
5. a statement of your right to bring suit under ERISA § 502(a).
TERMINATION OF BENEFITS
Benefits under the plan that are described in this handbook can terminate (unless the plan
provides otherwise) if:
* your employment terminates;
* the policy terminates;
* the provider goes out of business;
* you discontinue any required contributions; or
* the employer amends or terminates the plan.
In any case of reduction of benefits by plan amendment or termination, you must understand that
although the employer intends to continue these plans indefinitely, for business reasons it must
reserve the right to change or discontinue the plan at any time. If the employer terminates any
benefit or the plan for any reason and does not replace the coverage with comparable benefits,
you will receive ample notice. You also will be told how to convert your group insurance to
individual policies should any group coverage terminate or be terminated, whenever conversion
privileges may apply.
ADMINISTRATION 63
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What is "Continuation Coverage" and How Does it Work?
"Continuation Coverage" means your right, or your spouse's and dependent's right, to continue
the same coverage under a component medical benefit plan that was in place the day before a
Qualifying Event if participation by you (including your spouse and dependents) otherwise
would end due to the occurrence of such Qualifying Event. Continuation coverage under federal
law is provided under COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985).
A Qualifying Event is:
• termination of your employment (other than by reason of gross misconduct), or
reduction of your work hours;
• your death;
• divorce or legal separation from your spouse;
• your becoming entitled to receive Medicare benefits; or
• your dependent's ceasing to be a dependent.
For a Qualifying Event other than a change in your employment status or death, it will be your
obligation to inform the Administrator of the qualifying event within 60 days of its occurrence.
[Such notice must be in writing; oral notice, including notice by telephone, is not acceptable.
You must mail or hand deliver your notice to [insert name] at this address:
[enter name and address]
If mailed, the notice must be postmarked no later than the last day of the required notice period.
Any notice provided must state the name of the Plan, the name and address of the employee
covered under the Plan, and the name(s) and address(es) of the qualified beneficiary(ies). The
notice must also name the qualifying event and the date that it happened. If the qualifying event
is a divorce, the notice must include a copy of the divorce decree. If you and/or the qualified
beneficiary do not provide timely notice to the Administrator using these procedures, you will
lose your right to be offered COBRA continuation coverage.*]
The Administrator, in tum, will furnish you (and your spouse, as the case may be) with separate,
written options to continue the coverages provided at stated premium costs with respect to each
health plan in which you are participating. The notification you will receive will explain all the
rest of the terms and conditions of the continued coverage.
Certain participants with the Health FSA benefits will be eligible for COBRA Continuation
Coverage if they have positive Health FSA balances at the time of a Qualifying Event (taking
into account all claims submitted before the date of the qualifying event). You will -be notified if
you are eligible for COBRA Continuation Coverage. However, even if COBRA is offered for
the year in which the Qualifying Event occurs, COBRA coverage for the Health FSA will cease
at the end of the year and cannot be continued for the next Plan Year. You may pay premiums
for such coverage on an after-tax basis, but not beyond the current Plan Year.*
[*Please note that Department of Labor recently issued regulations which require plans to
establish reasonable procedures for the furnishing of these notices and sets general standards for
what will be considered reasonable. These regulations become effective for plan years
beginning on or after November 26, 2004.]
EMPLOYEE RIGHTS UNDER ERISA
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The Cafeteria Plan itself is not a welfare benefit plan governed by the Employee Retirement
Income Security Act ("ERISA"). However, the component plans may be governed by ERISA.
As a participant in an ERISA -covered benefit plan, you are entitled to certain rights and
protections under ERISA. ERISA provides that all participants shall be entitled to:
Receive Information About Your Plan and Benefits. Examine, without charge, at the plan
administrator's office and at other specified locations, such as worksites; all documents
governing the plan, including insurance contracts, and a copy of the latest annual report (Form
5500 Series), if any, filed by the plan with the U.S. Department of Labor and available at the
Public Disclosure Room of the Employee Benefits Security Administration (previously known as
the Pension and Welfare Benefit Administration).
Obtain, on written request to the plan administrator, copies of documents governing the
operation of the plan, including insurance contracts and collective bargaining agreements, and
copies of the latest annual report (Form 5500 Series) and updated summary plan description.
The administrator may make a reasonable charge for the copies.
Receive a summary of the Plan's annual financial report, if any is required by ERISA to be
prepared. The Plan Administrator is required by law to furnish each participant with a copy of
any required summary annual report.
COBRA and HIPAA Rights. Continue health care coverage under a -component plan that is a
group health plan for your self, spouse or dependents if there is a loss of coverage under the plan
as a result of a qualifying event. You or your dependents may have to pay for such coverage.
Review this summary plan description and the plan on the rules governing your COBRA
continuation coverage rights.
Reduction or elimination of exclusionary periods of coverage for preexisting conditions under
your group health plan, if you have creditable coverage from another plan. You should be
provided a certificate of creditable coverage, free of charge, from your group health plan or
health insurance issuer when you lose coverage under the plan, when you become entitled to
elect COBRA continuation coverage, when your COBRA continuation coverage ceases, if you
request it before losing coverage, or if you request it up to 24 months after losing coverage.
Without evidence of creditable coverage, you may be subject to a preexisting condition
exclusion for 12 months (18 months for late enrollees) after your enrollment date in your
coverage.
Prudent Actions by Plan Fiduciaries. In addition to creating rights for plan participants ERISA
imposes duties on the people who are responsible for the operation of the employee benefit plan.
The people who operate your plan, called "fiduciaries" of the plan, have a duty to do so
prudently and in the interest of you and other plan participants and beneficiaries. No one,
including your employer or any other person, may fire you or otherwise discriminate against you
in any way to prevent you from obtaining a plan benefit or exercising your rights under ERISA.
Enforce Your Rights. If your claim for a benefit is denied or ignored, in whole or in part, you
have a right to know why this was done, to obtain copies of documents relating of -the decision
without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there
are steps you can take to enforce the above rights. For instance, if you request a copy of the plan
documents or the latest annual report (if any) from the plan and do not receive them within 30
days, you may file suit in a Federal court. In such a case, the court may require the plan
ADMINISTRATION 65
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administrator to provide the materials and pay you up to $110 a day until you receive the
materials, unless the materials were not sent because of reasons beyond the control of the
administrator. If you have a claim for benefits which is denied or ignored, in whole or in part,
you may file suit in a state or Federal court.
If it should happen that plan fiduciaries misuse the plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or
you may file suit in a Federal court. The court will decide who should pay court costs and legal
fees. If you are successful the court may order the person you have sued to pay these costs and
fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds
your claim is frivolous.
Assistance With Your Questions. If you have any questions about your plan, you should contact
the plan administrator. If you have any questions about this statement or about your rights under
ERISA or HIPAA, or if you need assistance in obtaining documents from the plan administrator,
you should contact the nearest office of the Employee Benefits Security Administration, U.S.
Department of Labor, listed in your telephone directory or the Division of Technical Assistance
and Inquiries, Employee Benefits Security Administration, U. S. Department of Labor, 200
Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications hotline of the
Employee Benefits Security Administration.
["Employee Rights under ERISA" should be deleted in its entirety if the Plan is a "governmental
plan".]
Should you find it necessary to serve a legal action or summons on the plan, it should be directed
to the address indicated at the beginning of this document. See Exhibit A for additional
disclosures.
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EXHIBIT "A"
ADDITIONAL DISCLOSURES
A. PLAN NAME AND NUMBER
Plan Name -
Plan Number -
(the "Plan")
B. NAME, ADDRESS, TELEPHONE NUMBER AND TAX IDENTIFICATION
'NUMBER OF PLAN SPONSOR AND PLAN ADMINISTRATOR
U-
EIN:
C. PARTICIPATING EMPLOYERS
The employers whose employees are covered by the Plan are
and its subsidiaries
and affiliates. A complete updated list of the employers participating in the Plan may be
obtained upon written request to the Plan Administrator and is also available at the office
of the Plan Administrator for examination by participants and beneficiaries.
D. NAME AND ADDRESS OF THE AGENT FOR SERVICE OF LEGAL PROCESS
E. PLAN YEAR
The plan year for purposes of maintaining the Plan's records, is the annual period
through
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F. TYPE OF ADMINISTRATION
The Plan is self administered by the Plan Administrator. However, the Plan
Administrator has by contract obtained the performance of certain administrative
functions such as the review, processing, and payment of claims from a Claims
Administrator. The name, address, and telephone number of the Claims Administrator is:
O -
(For claims administration of insured benefits, see G. Insurers)
I�;iWIR
Insurance contracts have been purchased from insurers to fund certain benefits available
under the plan. The insurers are as follows:
Type of Benefits Insurer
name
Address
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SECTION VII
FLEXIBLE SPENDING ACCOUNTS
is applicable if your plan contains flexible spending acco
accounts)'as,lenefit options, 'and' if American Fidelity is
In General
What are flexible spending accounts and how do they work?
A cafeteria plan may, include one or both of the flexible spending account options as a benefit
that is available to plan participants. The flexible spending accounts can reimburse qualified
expenses for the participant, or the participant's spouse and/or dependents, as defined in Code
Section 152. The flexible spending accounts include:
Medical Expense Reimbursement (Health FSA)
Dependent Daycare Reimbursement (DCAP)
Definition of "Dependent" for Health FSA Purposes
The Health FSA may reimburse expenses for the employee, the employee's spouse or dependent.
Under the revised Code § 152 (effective beginning January 1, 2005) definition of dependent, an
individual is a taxpayer's dependent only if the individual is either a "qualifying child" or a
"qualifying relative" of the taxpayer.
The new definition of "Qualifying child" must meet four tests:
1. Relationship: child must be the taxpayer's child, brother, sister, stepbrother, stepsister, or a
descendant of any such person.
2. Residency: child must have the same principal place of abode as the taxpayer for more than
half of the taxable year.
3. Age: child must be under age of 19 [24 if a student] at the close of the calendar year. If child
is totally disabled, age restrictions do not apply.
4. Limited Self -Support: child must not have provided over half of his or her own support
during the calendar year in which the taxpayer's year begins.
If the child is not a "qualifying child," then ask whether the child is a "qualifying relative." A
child who is not a "qualifying child" under the new definition will be a "qualifying relative" if
the income and support tests are satisfied.
A "qualifying relative" must also meet four tests:
1. Relationship test: the individual must be the taxpayer's
• Child (or descendant of such a child);
• Brother, sister, stepbrother or stepsister;
• Parent (or parent's ancestor) or stepparent;
• Brother or sister's son or daughter (nephew or niece);
• Parent's brother or sister (uncle or aunt)
• Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-
law; or
• An individual who, for the taxable year (1) has the same principal place of abode as
taxpayer, and (2) is a member of the taxpayer's household.
ADMINISTRATION 69
DocuSign Envelope ID: 61ACO2EO-SB814CCD-B079-A8CEOFD56332
2. Income test: the individual's gross income for the calendar year in which the taxpayer's
taxable year begins must be less than the Code § 151(d) exemption amount [$3,400 for 20071.
3. Support test: the individual generally must have received over half of his or her support
from the taxpayer during the calendar year in which the taxpayer's taxable year begins.
4. Not a qualifying child: the individual cannot be a qualifying child of the taxpayer or any
other taxpayer.
Further, the IRS issued Notice 2004-79, which stated that an employee may exclude from gross
income the value of employer-provided coverage for an individual who meets the definition of a
qualifying relative except that the individual's gross income equals or exceeds the exemption
amount. Without the relief provided by IRS Notice 2004-79, beginning in 2007 employees
would have been taxed on the value of health coverage (premiums) for certain individuals whose
gross income exceeds $3,400.
Definition of "Dependent" for Daycare Purposes
For dependent day care (DCAP) plans, the services must be incurred for a "qualifying
individual". A qualifying individual is defined under Code § 21(b)(1), as follows:
• A dependent of the taxpayer as defined in Section 152(a)(1), (i.e., qualifying child) who has
not reached the age of 13 and has the same principle place of abode for more than one-half of
the year.
• A dependent of the taxpayer (qualifying child or qualifying relative) who is physically or
mentally incapable of self-care and who has the same principle place of abode as the
taxpayer for more than one-half of the year. The individual must regularly spend at least
eight hours per day in the employee's household.
■ A spouse who is physically or mentally incapable of self-care and who has the same principle
place of abode as the taxpayer for more than one-half of the year. The individual must
regularly spend at least eight hours per day in the employee's household.
When determining whether a person who is incapable of self-care is a qualifying individual,
status as a dependent is determined without regard to the income test for being a qualifying
relative.
A special rule for parents who are divorced or separated provides that a child is a qualifying
individual with respect to the custodial parent—the parent having custody for the greater portion
of the calendar year.
The §125 Regulations allow benefit dollars to be set aside for the reimbursement of qualified
expenses under these accounts. Participation in the flexible spending accounts is subject to the
"use or lose" requirement, which states that any unused contributions will revert back to the
employer. Forfeitures can then be used in several different ways (see "How Experience Gains from
Forfeitures May be Used" later in this section).
Important Notes
ADMINISTRATION 70
DocuSign Envelope ID: 61ACO2EO-5B814CCD-8079-A8CEOF056332
• Participants may allocate specified amounts of monthly salary or wages for the
reimbursement of medical care expenses or dependent daycare expenses, or both.
• A claim voucher must be filed for reimbursement of the eligible medical care or
dependent daycare expenses they have incurred.
• No reimbursements are made until the fust contribution of each plan"year is received
by American Fidelity.
• H American Fidelity insures the Health FSA uniform coverage risk, elections for short
plan years (whether it is a short plan year generated by the Employer, or because a
new hire elects the Health FSA mid -plan year) are limited to a prorated amount [the
stated maximum divided by 12 months X the remaining months in the plan year.]
The premium for the risk policy will be prorated using the same formula.
• Dependent daycare elections are not necessarily limited for short plan years; however,
because participants may not be reimbursed more than $5,000 in a calendar year,
daycare elections may also be limited to a prorated amount.
• Employees who participate in either a Health FSA or an HRA (Health
Reimbursement Arrangement) are not eligible to participate in a Health Savings
Account (HSA), unless the Health FSA or HRA is limited to reimbursement of dental
and vision expenses.
Important Restrictions
• Participants must elect to participate prior to the beginning of each plan year. There
is no allowance for late enrollment. Newly hired employees must enroll before the end
of the eligibility waiting period stated in your plan document.
• The amounts designated by participants for medical reimbursement may not
subsequently be used for reimbursement of dependent daycare expenses and vice
versa.
• If participants do not file sufficient claims for reimbursement, they will lose the
unused amounts. This is often referred to as the "use or lose" rule.
• If participants are enrolled in the Health FSA and take a leave of absence during the
Plan Year, they may:
1. Prepay the contributions pre-tax, or
2. Continue the contributions on an after-tax basis (pre-tax contributions may
continue when they return to work), or
3. Prorate the unpaid contributions over the remaining pay periods when they
return to work.
When American Fidelity insures the uniform coverage risk, no changes are allowed for the
Health FSA. Participants in the Health FSA who are out on an unpaid leave of absence
(whether qualifying under Family Medical Leave or otherwise) must make all contributions.
If contributions from the participant have not continued, the employer is responsible for any
negative balance for that participant.
Although a mid -year election change for a qualified event can be made to the dependent
daycare reimbursement account, failure to make all elected contributions to that account
ADMINISTRATION 71
DocuSign Envelope ID: 61ACO2EO-5BB14CCD-8079-ABCEOFD56332
results in termination of the participant's coverage in the dependent daycare reimbursement
account as of the date contributions cease, even if there are remaining funds. In other words,
claims incurred after contributions cease will not be reimbursed.
Claims For Reimbursement
The Health FSA reimbursements can be for expenses claimed up to the maximum benefit amount
the participant elected for the year. Because the dependent daycare reimbursement account is not
subject to the uniform coverage rule, a reimbursement for dependent daycare can only be made up
to the account balance. If the dependent daycare claim is in excess of the account balance, the
balance of the amount due will be forwarded to the participant as additional contributions are
received.
Participants may only be reimbursed for expenses incurred during the plan year plus the grace
period if elected by the employer. However, the plan allows a runoff period, usually 90 days
following the end of the plan year, during which time claims incurred during the plan year plus the
grace period if elected by the employer, may be submitted for reimbursement.
Claim forms should be accompanied by the statement received when the service was provided or
an insurance company Explanation of Benefits (EOB) which has been provided by an independent
third party. Only expenses properly verified by the independent third party will be reimbursed.
Dependent daycare claims must be accompanied by a Dependent Daycare Provider
Acknowledgement form, which includes the provider's tax identification number or Social Security
number.
Health FSA
The Health FSA allows a participant to be reimbursed for qualified medical expenses on a pre-
tax basis. The requirements include:
Qualified Expenses
• The expense must have been incurred (and the service rendered) during the plan year plus the
grace period if elected by the employer;
• The expense must be for the employee or the employee's spouse, or for employee's
dependent (as defined in Code § 152);
• The employee must provide proof of the expense;
• The expense cannot have been reimbursed to the employee from any other source (e.g.,
insurance); and,
• The expense must be for medical care.
Code § 213(d) defines "medical care" as amounts paid:
• For the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of
affecting any structure or function of the body; and,
• For transportation primarily for and essential to the medical care referred to above.
The employer determines the minimum and maximum amounts available under the plan, which
will be reflected in the plan document.
The Health FSA is subject to specific rules including:
ADMINISTRATION 72
DocuSign Envelope ID: 61ACO2E0-5B81-4CCD-B079-A8CEOFD56332
• The Health FSA cannot reimburse expenses that represent deferred compensation,
• There must be uniform coverage throughout the period of coverage,
• The expenses must have been incurred during the period of coverage,
• The coverage period must generally be 12 months (exception for a prospective short plan
year),
• Reimbursement of insurance premiums is prohibited,
• Expenses may not be reimbursed or reimbursable from another source,
• Adequate claims substantiation must be provided including statements from the participant
and an independent third party.
Unlike the Dependent Daycare Account, once the initial contribution is receivedfrom the
employee and credited to their Health FSA, the participant is entitled to receive the full amount
elected for the plan year.
Expenses claimed under the Health FSA cannot be used as a federal tax deduction on the
participant's tax filing — "double-dipping" is not allowed.
The participant's Health FSA may be used to reimburse out of pocket medical, dental or vision
expenses not reimbursed through any other means for expenses incurred during the current plan
year plus the grace period if elected by the employer for treatment of the participant, spouse, and
eligible dependents. Participants must provide proof of the expense (e.g., statement from provider,
EOB, etc.).
Eligible medical expenses include deductible and coinsurance amounts under a group health plan,
charges that are in excess of the amount reimbursed under a group health plan, and charges that are
not covered by a group health plan such as certain corrective surgery, vision care; dental care and
hearing aids. See the list of eligible and ineligible expenses for reimbursement. The list is not all-
inclusive.
Grace Period
Under recent IRS guidance, a grace period of 2 months and 15 days is allowed immediately
following the end of the plan year for FSAs. Although the guidelines also pertain to the DCAP
FSA, American Fidelity will limit the grace period to the Health FSA only. The grace period is an
optional choice for employers and must be included in your plan document. The grace period
allows participants to incur additional reimbursable expenses to be paid or reimbursed from the
unused benefits or contributions as if the expenses had been incurred in the immediately preceding
plan year. The grace period will run concurrently with the runoff period. The employer has the
choice of electing the grace period, or having reimbursements limited to those incurred in the plan
year affected.
Claims Appeal Procedures
The following description of claims procedure rights applies only to benefits received under the
Health FSA, and only if the Employer/Plan Sponsor is not a governmental entity (i.e., the
Employer/Plan Sponsor has to comply with ERISA requirements). Participants have the right to
appeal any "adverse benefit determination." Participants are entitled to receive, upon request
and free of charge, copies of all documents relevant to the determination including: any internal
guideline or similar criterion relied on in making the determination, and an explanation of any
scientific or clinical judgment on which any "medical necessity" or "experimental treatment"
aspect of the determination was based. A participant will have 180 days from the receipt of this
ADMINISTRATION 73
DocuSign Envelope ID: 61ACO2EO-58814CCD-8079-ABCEOFD56332
notice to file an appeal. A participant must file the appeal by submitting a written request for
appeal by first-class mail to the Employer/Plan Sponsor. The appeal should include any relevant
data, documents, records and other information relating to the benefits denial. A final decision
will be made not later than 60 days following receipt of the initial written request, unless special
circumstances require more time to reach a decision. The review period may then be extended
by an additional 30 days. American Fidelity Assurance (AFA) will notify a participant in
writing if an extension of the review period is necessary. If AFA requests additional
information, a participant will have 45 days to respond. If the participant does not provide the
requested information within 45 days, AFA may conclude review of the claim based on the
information we have received. If the claim is denied on appeal, the participant has the right to
bring a civil action for benefits under Section 502(a) of ERISA. These rights and the appeal
procedure are explained in detail in the Summary Plan Description or equivalent Plan document.
Failure to file a timely appeal will bar participants from any further review of the benefit denial
under these procedures or in a court of law.
The provisions in the Plan document on which the denial is based are Sections 8.03(c) and
8.04. Please review the plan document for specifics regarding these provisions.
List of common out-of-pocket reimbursable medical expenses toot alt -inclusive).
Below is a list of expenses and whether they are eligible for reimbursement through the medical
expense reimbursement account. Some items are considered by the IRS to be "dual purpose".
Dual-purpose items require a doctor's statement including the diagnosis of a specific
medical condition and that the item is recommended to treat the diagnosed condition.
Due to recent IRS oral guidance, up -front payments for the contracted amount for orthodontia
may be reimbursed in full, even though all services for all treatment have not yet been incurred.
A copy of the orthodontia contract showing (1) the start date of the treatment, (2) the amount of
the contract, and, (3) the estimated length of treatment time, must be submitted with the initial
reimbursement request. Effective January 1, 2009, proof of payment will be required for
reimbursement. Reimbursement can only be for amounts not covered from other sources, such
as the dental plan.
American Fidelity does not reimburse capital expenses, even though they may be qualified
expenses. Examples of capital expenses include, but are not limited to, exercise equipment,
removal of lead-based paint, air conditioner, air purifier, mattresses, pillows, vacuums, water
filters, automobile modifications for physically handicapped individuals, and home
improvements such as exit ramps, widening doorways, etc. to accommodate physically
handicapped individuals.
If an expense is not listed below, please contact the Flex Administration Department at (800)
354-7059.
EXPENSE:. *ELIGIBLE? **DUAL_.
PUB.POSE?
ADMINISTRATION 74
DocuSign Envelope ID: 61ACO2EO-5B81ACCD-8079-A8CEOFD56332
ADMINISTRATION 75
t
(ne�eKdo�ctor''�s
Abortion
Yes, if legal abortion.
Acne treatment — over the counter
Yes, if treating medical condition such as
acne vulgaris(but see Retin A).
Yes
Acupuncture
Yes.
Adoption — medical expenses incurred
before adoption is finalized
Yes, if child was legal dependent when
services provided.
Advanced reimbursements
No (but see Orthodontia expenses and
Prenatal expenses).
Alcoholism treatment
Yes, for inpatient treatment (including
meals and lodging) at a center for alcohol
addiction.
Allergy medicine
Yes
Ambulance
Yes
Analgesics
Yes
Antacid
Yes
Antihistamine
Yes
Anti -itch creams
Yes
Antiobiotic sprays or ointments (for
first aid
Yes
Artificial limbs and teeth
Yes
Aspirin
Yes
Autopsy
No
Bab sittin child care
No
Bandages
Yes
Behavioral modification programs
Possibly (see Schools and education,
special).
Yes
Birth control pills
Yes
Birthing classes/childbirth
classes/Lamaze
Yes, if classes relate to childbirth and not
child rearing. Expenses for a coach;
doula or significant other are not eligible.
Yes
Blood pressure monitoring devices
Yes
Blood sugar test kit and test strips
Yes
Body scan
Yes, for diagnostic purposes.
Breast pumps
No, unless medical need.
Yes
Breast reconstruction surgery
following mastectomy
-Yes, if mastectomy was done following
cancer.
Calamine lotionI
Yes
Carpal tunnel wrist supports
Yes
Chelation therapy
Yes, if used to treat medical condition
such as lead poisoning.
Yes
Childbirth classes
Yes, if classes relate to childbirth and not
child rearing. Expenses for a coach,
doula or significant other are not eligible.
Yes
Chiropractors
Yes
Chondroitin
Yes, if used to treat medical condition
and not to maintain good health.
Yes
Christian Science practitioners
Yes, fees paid to Christian Science
practitioners for medical care will
Yes
ADMINISTRATION 75
DocuSign Envelope ID: 61ACO2EO-BB814CCD-8079-ABCEOFD56332
ADMINISTRATION 76
ualify.
Circumcision
Yes
COBRA premiums
No
Cold medicine
Yes
Cold/hot packs
Yes, if sold as medical supply.
Condoms
Yes
Co-insurance amounts, co -payments
Yes, if the underlying service/item
and deductibles
qualifies.
Contact lenses, solutions and
Yes, if the lenses are needed for a
equipment
medical condition.
Contraceptives
Yes
Cosmetic procedures or surgery
No, except for amounts paid for surgery
necessary to improve a deformity arising
from a congenital abnormality, personal
injury from an accident or trauma, or a
disfiguring disease.
Cosmetics
No, including face cream, moisturizer,
deodorant, handibody lotion, make-up,
shampoo, toothpaste, mouthwash or any
other item used for ordinary cosmetic
purposes.
Cough suppressants
Yes
Counseling
Yes, for medical reason; no, for marriage
Yes
counseling.
Crutches
Yes, for rental or purchase.
Decongestants
Yes
Deductibles
Yes
Dental treatment
Yes, but see restrictions for Teeth
whitening and bleachin
Dentures and denture adhesives
Yes
Dependent daycare expenses
No
Diabetic supplies
Yes
Diagnostic services
Yes
Diaper rash ointment/cream
Yes
Diapers or diaper service
No, unless used to relieve the effects of a
diagnosed medical condition, such as
urinary incontinence in adults.
Diarrhea medicine
Yes
Dietary supplements
Yes, if recommended by medical
Yes
practitioner to treat a specific medical
condition.
DNA collection and storage
Generally no, but temporary storage may
Yes
be reimbursable if collected as part of a
diagnosis, treatment or prevention of
existing or imminent medical condition.
Drug addiction treatment
Yes, for inpatient treatment (includes
meals and lodging) at a therapeutic drug
center.
Drug overdose treatment
Yes
ADMINISTRATION 76
DocuSign Envelope ID: 61ACO2EO-5881-0CCD-8079-A8CEOFD56332
Drugs and medicines
Yes, if legally obtained and generally
Yes.
accepted as medicines and drugs and are
used to treat a medical condition. This
includes prescription drugs and
medicines. Certain medicines may
require a doctor's statement for
necessity.
Ear plugs
Yes, if treating medical condition.
Yes
Egg donor fees
Yes
Eggs and embryos storage fees
Possibly, with respect to temporary
Yes
storage, but only to the extent necessary
for immediate conception.
Electrolysis or hair removal
Generally, no.
Eye examinations, eyeglasses and
Yes
related equipment and
materials/cleaners
Face creams, moisturizers
No
Face lifts
No
Feminine hygiene products
No (but see Incontinence supplies and
Menstrual pain relievers).
Fertility treatments (e.g., surgery, in
Yes, to the extent procedure is intended
vitro fertilization (IVF), gamete
to overcome an inability to have children.
intrafallopian transfer (GIFT) and
Expenses.for IVF surrogate not
shots)
deductible unless the surrogate is a tax
dependent.
Fiber supplements
No, if taken as a supplement to a normal
Yes
diet; yes, if recommended by a medical
practitioner to treat a specific medical
condition.
First aid cream and first aid kits
Yes
Fitness programs
Yes, but only if prescribed by a doctor
Yes
for treatment of obesity or other medical
condition.
Flu shots
Yes
Funeral expenses
No
Gambling addiction treatment
Yes, for inpatient treatment (including
meals and lodging) at a center for
addiction.
Gauze pads
-gambling
Yes
Genetic testing
Yes, if for determination of possible birth
Yes
defects; no if for sex determination.
Glucosamine
Yes, if primarily for medical treatment.
Yes
Glucose monitoring equipment
Yes, including blood glucose meters and
test strips for diagnostic purposes.
Guide dog or other animal aide
Yes, includes expenses related to
purchase, training and care of animal
used by vision -impaired or hearing-
impaired person.
Hair removal/transplant
No, usually cosmetic.
ADMINISTRATION 77
DocuSign Envelope ID: 61ACO2EO-5BB1-4CCD-9079-A8CEOFD56332
Health club dues and fees
No, for general health purposes, but may
Yes
be allowed if prescribed by a doctor to
treat a specific medical condition.
Hearing aids
Yes, including batteries.
Hemorrhoid treatment
Yes
Herbal supplements
See Dietary supplements.
Yes
Home care
Yes, if expenses qualify as nursing
Yes
services; no, if for long term care.
Hormone replacement therapy
Yes, if primarily for medical care.
Yes
Hospital services
Yes
Illegal operations and treatments
No
Immunizations
Yes
Incontinence supplies
Yes, used specifically to treat
Yes
incontinence.
Infertility treatments
See Fertility treatments.
Insect bite creams and ointments
Yes
Insulin
Yes
Insurance premiums
No
Laboratory fees
Yes, if part of medical care or diagnosis.
Lamaze class
See Childbirth classes.
Yes
Language training for
Yes
Yes
dyslexic/disabled child
Laser eye surgery/Lasik/Radial
Yes, for correction of eye function.
Keratotomy
Late fees on medical bills
No
Laxatives
Yes
Learning disability, instructional fees
Yes, includes expenses for special school
or specially trained teacher (prescribed
by doctor) for a child who has severe
learning disability caused by mental or
physical impairment.
Liquid bandage
Yes
Lodging at hospital or similar
Yes, if there to receive medical care.
institution
Lodging not at hospital or similar
Yes, up to $50/night, provided: (1)
institution
lodging is primarily for and essential to
medical care; (2) medical care is
provided in a hospital or medical facility
related to or equivalent to licensed
hospital; (3) lodging is not lavish; and (4)
no element of personal pleasure,
recreation or"vacation in the travel.1
Lodging of a companion
Yes, if accompanying a patient for
Yes
medical reasons and all of the conditions
described under Lodging not at a hospital
are also met.
Lodging while attending a medical
No
conference
Long term care services
Generally, no.
Marijuana or other controlled
No, even if legal in certain states.
ADMINISTRATION 78
DocuSign Envelope ID: 61ACO2EO-5B814CCD-8079-A8CEOFD56332
substances
Massage therapy
No, unless prescribed by a doctor to treat
Yes
medical condition related to trauma or
injury.
Mastectomy -related bras
No, unless prescribed for mental health
Yes
treatment.
Medic -alert bracelet/necklace
Yes, if recommended by a medical
Yes
practitioner in connection with treating a
medical condition.
Medical conference
Yes
Yes
admission/transportation/meals
Medical monitoring and testing
Yes, including blood pressure monitors,
devices
syringes, lucose kits, etc.
Medical records charges
Yes, for the cost for transferring or
vhotocovvina records.
Medical services
Yes, if legal medical service is
recommended by physician, surgeon,
or other medical practitioner.
Medicines and drugs
-specialist
Yes, to treat a medical condition.
Yes
Menstrual pain relievers
Yes
Mentally handicapped, special home
The cost of keeping a mentally
Yes
for
handicapped person in a special home
(not a relative's home) on a psychiatrist's
recommendation to help that person
adjust from life in a mental hospital to
community living may apply.
Missed appointment fee
No
Motion sickness pills
Yes
Nasal strips or sprays
Yes, if used to treat sinus problem or
Yes
'apnea.
Naturopathic healers, dietary
-sleep
Possibly, non-traditional healing
Yes
substitutes and drugs and medicines
treatments provided by professionals
may be eligible if provided to treat a
specific medical condition.
Nicotine gum or patches
Yes
Norplant insertion or removal
Yes
Nursing services provided by a nurse
Yes, so long as services are of a kind
Yes
or other attendant
generally performed by a nurse.
Nursing services for a baby
No, if baby is normal and healthy.
Nutritionist's professional expenses
Possibly, if treatment relates to a
Yes
specifically diagnosed medical condition.
Nutritionalsupplements
No, if merely beneficial; for general good
Yes
health.
Obstetrical expenses
Yes
Occlusal guards to prevent teeth
Yes
grinding
Optometrist,
Yes
Organ donor
Yes, including surgical, hospital and
laboratory services as well as
transportation expense for donor.
ADMINISTRATION 79
DocuSign Envelope ID: 61ACO2EO-5BB1-4CCD-8079-ABCEOFD56332
Orthodontia expenses
Yes, the IRS recently indicated that
orthodontia expenses paid up front might
be reimbursed in the year during which
the lump sum amount was contracted,
despite the fact that all expenses.have not
et been incurred.
Over-the-counter medicines
See Drug and Medicines.
Yes
Ovulation monitor
Yes
Pain relievers
Yes
Patteming exercises
Yes, for exercises for a mentally
handicapped child.
Physical exams
Yes
Physical therapy
Yes
Physician access retainer
No
Pregnancy test kit
Yes
Prenatal expenses
Yes; the IRS recently indicated that
prenatal expenses paid up front might be
reimbursed in the year during which the
lump sum amount was contracted,
despite the fact that all expenses have not
et been incurred.
Prenatal vitamins
Yes,, if taken due to pregnancy.
Yes
Prescription drugs and medicines
No
obtained from'other countries'
Prescription drug discount programs
No, a fee paid to get a drug discount card
will not qualify; the cost of the
prescription may uali .
Propecia
No, if for cosmetic purposes (i.e., to treat
Yes
male pattern baldness); yes, if used to
treat medical condition such as alopecia.
Prosthesis
Yes
Psychiatric care
Yes, if for medical care.
Psychoanalysis or psychologist
Yes, if for medical care and not for the
Yes
general improvement of mental health, to
relieve stress or personal enjoyment.
Radial keratotomy
Yes
Retin-A .
No, unless treating a specific medical
Yes
condition, such as acne
Rogaine
No, unless prescribed to treat a specific
Yes
medical condition.
Safety glasses
No, unless prescription lenses.
Schools and education, residential
-Possibly, if the school or program is to
.Yes
treat behavioral, emotional and/or
addictive conditions and if the primary
purpose of the program is medical care.
Schools and education, special
Possibly, if the main reason for using the
Yes
school is its resources for relieving the
disability of a mentally impaired or
physically disabled person. Includes
Braille, lip-reading and remedial
ADMINISTRATION 80
DocuSign Envelope ID: 61ACO2E05B81-4CCD-8079-A8CEOFD56332
ADMINISTRATION 81
language training; no, if the main
purpose of the school is disciplinary.
Screening tests
Yes, if used for medical diagnosis.
Seeing -eye dog
Yes, including veterinary fees.
Sinus medication
Yes
Sleep deprivation treatment
Possibly, if person is under care of a
medical practitioner.
Smoking cessation (stop -smoking)
Yes, as well as prescription and/or over -
programs
the -counter drugs and medicines used to
sto smoking.
Spermicidal foam
Yes
Sperm, storage fees
Possibly, for temporary storage to the
Yes
extent necessary for immediate
conception.
St. John's Wort
Yes, if used primarily for medical care
Yes
(i.e., depression) and not for general
good health.
Sterilization procedures
Yes, if legally erformed operation.
Sunglasses
Yes, if they are prescription lenses.
Sunscreen with high SPF
Yes, if SPF is generally 30 or higher and
used to prevent a sunburn. Would also
qualify if used by a person who has or
has had skin cancer or another diagnosed
skin disease that is affected by sun
exposure. Does not include tanning
lotions, make-up or moisturizers, etc.,
that contain a lower dose of SPF.
Suntan lotion/clothing to block sun
No
Supplies to treat medical condition
Yes, if the medical supply is used to
diagnose or treat a specific medical
condition and is not a personal comfort
item.
Surrogate expenses
Generally no, even if for medical care of
or unborn child.
Taxes on medical services and
-surrogate
Yes, to the extent imposed on
products
reimbursable medical care or products.
Teeth whiteningibleaching
No
Telephone equipment for hearing
Yes, for expense of buying and repairing
Yes
impaired -person
special telephone equipment for hearing-
impaired person.
Television equipment for hearing-
Yes,'but reimbursable amount is limited
Yes
impaired person
to the cost that exceeds cost of regular
item.
Thermometers
Yes
Throat lozenges
Yes
Toothache and teething pain relievers
Yes
Toothbrushes or toothpaste
'No, even if dentist recommends special
ones to treat medical condition.
Transplants
Yes, for surgical, hospital and labor
services and trans ortation expenses for
ADMINISTRATION 81
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-B079-A8CEOFD56332
Dependent Daycare Expense. Reimbursement Account (DCAP)
The dependent daycare reimbursement account allows an employee to be reimbursed for
qualified employment-related dependent daycare expenses. Participants can allocate up to
$5,000 for the tax year ($2,500 if married and filing separately). In order to be a qualified
expense, the expense must meet the following requirements:
DCAP requirements
• The expense must be incurred during the current plan year;
• Dependent daycare expenses must be incurred to allow the participant and spouse, if married, to
work or look for work;
• The expense must be for a "qualifying individual' who is (1) a "qualifying child" (as defined in
Code § 152) under the age of 13 and has the same principle place of abode for more than one -
ADMINISTRATION 82
donors.
Transportation to and from medical
Yes, for admission and transportation
Yes
conference
expenses to a medical conference relating
to the chronic disease of the individual.
Transportation expenses for person to
Yes, if travel is primarily for, and
receive medical care
essential to, medical care. Includes
parking and tolls. Car mileage is
reimbursed at the current rate set by the
IRS each year.
Transportation expenses for someone
Yes, in some cases for the following: (1)
Yes
other than the person receiving
a parent who must go with a child who
medical care
needs medical care; (2) a nurse or other
person who gives injections, medication,
or other treatment required by a patient
who is traveling to get medical care and
is unable to travel alone; and (3) an
individual who travels to visit a mentally
ill dependent, if such visits are
recommended as part of treatment.
Vasectomy/vasectomyVasectomy/vasectomy reversal
Yes
Veneers
Generally no, as they are usually for
cosmetic purposes.
Viagra
Yes, if prescribed by a physician to treat
a medical condition.
Vitamins
No, if they are used to maintain general
Yes
good health.
Walkers
Yes, if used to relieve sickness or
disability
Weight -loss programs and/or drugs
Yes, if prescribed by a doctor to treat
Yes
prescribed to induce weight loss
obesity or other medical condition.
Wheelchair
Yes
X-ray fee
Yes, if received for medical reasons.
Dependent Daycare Expense. Reimbursement Account (DCAP)
The dependent daycare reimbursement account allows an employee to be reimbursed for
qualified employment-related dependent daycare expenses. Participants can allocate up to
$5,000 for the tax year ($2,500 if married and filing separately). In order to be a qualified
expense, the expense must meet the following requirements:
DCAP requirements
• The expense must be incurred during the current plan year;
• Dependent daycare expenses must be incurred to allow the participant and spouse, if married, to
work or look for work;
• The expense must be for a "qualifying individual' who is (1) a "qualifying child" (as defined in
Code § 152) under the age of 13 and has the same principle place of abode for more than one -
ADMINISTRATION 82
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-9079-A8CEOFD56332
Work Requirement
Work may include actively looking for work. (Unpaid volunteer work or volunteer work for a
nominal salary does not qualify.)
List of Common Daycare Reimbursement Expenses
EXPENSE
ELIGIBLE?
After-school and/or before -school care or
Yes, if used to enable the employee and spouse
extended day programs (supervised
to be gainfully employed. The primary purpose
activities for children after the regular
is to care for children while parents are at work.
school program)
Agency Fee
Yes, if it is required in order to obtain the related
care. Cannot be reimbursed before care is
provided.
Application Fee
Yes, it is required in order to obtain the related
care. Cannot be reimbursed before the care is
provided.
An pair expenses
Yes, but not airfare or other fixed costs.
However, an up -front fee paid to employ the an
pair may qualify if fee must be paid to obtain
services. Fee should not be reimbursed until
services are rendered.
Baby-sitter inside or outside of
Yes, unless baby-sitter is a child, step -child, or
participant's household
eligible foster child of the employee (or spouse)
under age 19; or, an individual that the
employee or spouse can claim a deduction on
IRS form 1040.
Before -school programs
See After-school programs.
Boarding School
No.
Chauffeur
No.
Cook
Generally no, except where attributable in part to
child care.
Day Camp
Yes, if the program is set up to care for the
qualifying individual, even if the day camp
specializes in a particular activity.
Dependent care center expense
Yes, provided they meet requirements of Code §
21 2 C .
Deposit
Yes, if the expense if required to receive the
related care. However, the fee cannot be
reimbursed until the care has been provided.
Disabled spouse or tax dependent that lives
No, they must live in the employee's household
outside of household
at least eight hours per day.
Educational expenses — first grade and
No, educational expenses are not considered
ADMINISTRATION 83
DocuSign Envelope ID: 61ACO2EO-5BB14CCD-BO79-ABCEOFD56332
above
expenses for care.
Educational expenses — kindergarten
No, expenses are considered educational in
nature and not custodial (regardless of half- or
full-day, private or public, state mandated or
voluntary).
Educational expenses — pre -kindergarten or
Yes, since care is primarily custodial in nature.
nursery school
Elder care / assisted living / custodial care /
Only if such expense is for daycare and is not
long term care / nursing home
attributable to medical services and the
individual is a "qualifying individual" (either a
qualifying child or a qualifying relative, as
defined in Code § 152), who regularly spends at
least eight hours per day in the employee's
household.
FICA and FUTA taxes of day care provider
Yes, if the overall expenses of the care qualify.
Food expenses
No, if charged separately from dependent care
expense.
Gardener
No.
Household services, e.g., housekeeper,
Generally no, except where attributable in part to
maid, cook
child care.
Incidental expenses — e.g., extra charges for
No, if charged separately from dependent care
diaper changing, special activities, etc.
expense.
Kindergarten
No. Considered educational in nature and not
custodial.
Late fees
If the payment relates directly to the care of the
child, such as late pick-up fee charged if the
child is picked u late.
Looking for work — dependent care
Yes.
expenses incurred to enable participant to
look for work
Maid
Generally no, except where attributable in part to
child care.
Nanny expenses
Yes, to the extent the expense is attributable to
dependent care expenses and expenses of
household services attributable in part to care of
qualifying individual.
Overnight camp
No, not employment related expenses. But see
Day Camp.
Part-time employment (payments to
If the employee is required to pay for care on a
provider for periods when employee works
periodic basis (such as weekly or monthly) basis
part-time)
that includes both work and non -work days,
payments for periods that include both work and
non -work days will qualify in full. Otherwise,
expenses must be allocated between work and
non -work days.
Recreation
No, if charged separately from dependent care
expense.
Registration fees for care
Yes, if the fee must be paid in order to obtain
care. However, the fee cannot be reimbursed
ADMINISTRATION 84
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-8079-A8CEOFD56332
Election Changes Under DCAP
Under the IRS regulations, a change can be made to the participant's DCAP election whenever
there has been a change in the need for daycare (e.g. birth or death of child), when there has been
a coverage change (e.g., grandparent will watch child for no charge) or when there has been a
cost change (e.g. daycare center increases rates). A participant cannot increase their DCAP
election in order to increase the fee paid to a relative (as defined in Code § 152) mid -plan
year for daycare services.
Qualifying Individual
For dependent day care (DCAP) plans, the services must be incurred for a "qualifying
individual". A qualifying individual is defined under Code § 21(b)(1), as follows:
A dependent of the taxpayer as defined in Section 152(a)(1), (i.e., qualifying child) who has
not reached the age of 13 and has the same principle place of abode for more than one-half of
the year.
ADMINISTRATION 85
until the care has been provided.
Relative of a participant, expenses paid to
Yes, unless the relative qualifies as a dependent
for child care (e.g., parent or grandparent
of the participant and can be claimed as a
of participant)
deduction on IRS Form 1040, or, is the
employee's dependent relative under the age of
19.
Sick -child facility
Yes, if they are incurred to enable participant to
work when the child is ill.
Sick employee (care for dependent when
If the absence is short and temporary (up to two
the participant stays home sick)
consecutive weeks) and the care giving
arrangement requires the employee to pay for
care during the absence, then a payment for a
period that includes the absence will qualify for
reimbursement in full. Other absences generally
will not qualify.
Summer day -camp
See Day Camp.
Transportation expenses
Yes, if transporting a qualifying individual to or
from a place where care is provided and the
transportation is furnished by a dependent care
provider. Otherwise, the expense is not
considered as care unless included in the
de endent da care charge.
Tuition expenses
No.
Vacation (payments to provider when
If the absence is considered short and temporary
employee is on vacation)
and the care giving arrangement requires the
employee to pay for care during the absence.
Other absences will not qualify. Short and
tem ora is u to two consecutive weeks.
Volunteer work — expenses incurred to
No, if the volunteer work is unpaid work or for
enable participant to volunteer
nominal pay
Election Changes Under DCAP
Under the IRS regulations, a change can be made to the participant's DCAP election whenever
there has been a change in the need for daycare (e.g. birth or death of child), when there has been
a coverage change (e.g., grandparent will watch child for no charge) or when there has been a
cost change (e.g. daycare center increases rates). A participant cannot increase their DCAP
election in order to increase the fee paid to a relative (as defined in Code § 152) mid -plan
year for daycare services.
Qualifying Individual
For dependent day care (DCAP) plans, the services must be incurred for a "qualifying
individual". A qualifying individual is defined under Code § 21(b)(1), as follows:
A dependent of the taxpayer as defined in Section 152(a)(1), (i.e., qualifying child) who has
not reached the age of 13 and has the same principle place of abode for more than one-half of
the year.
ADMINISTRATION 85
DocuSign Envelope ID: 61ACO2EO.5B81ACCD-B079-A8CEOFD56332
A dependent of the taxpayer (qualifying child or qualifying relative) who is physically or
mentally incapable of self-care and who has the same principle place of abode as the
taxpayer for more than one-half of the year. The individual must regularly spend at least
eight hours per day in the employee's household.
A spouse who is physically or mentally incapable of self-care and who has the same principle
place of abode as the taxpayer for more than one-half of the, year. The individual must
regularly spend at least eight hours per day in the employee's household.
When determining whether a person who is incapable of self-care is a qualifying individual,
status as a dependent is determined without regard to the income test for being a qualifying
relative.
Child of Divorced or Separated Parents
If divorced or separated, a child or stepchild qualifies if he or she:
a. Was under age 13 at the time the care was provided or not able to care for himself or
herself, and.
b. A child is a qualifying individual with respect to the custodial parent—the parent
having custody for the greater portion of the calendar year. The participant must be
the custodial parent and the child must live in the home.
Payments To Relatives
* Eligible dependent daycare expenses do not include payment to a person claimed as a dependent
for federal income tax purposes.
* Payments to participant's child are not eligible expenses unless the child was age 19 or over by
the end of the year.
Earned Income Limit
Eligible expenses during a calendar year may not be more than:
1. Participant's earned income for the year, if single at the end of the calendar year, or
2. The smaller of participant's earned income or spouse's earned income for the year, if
married at the end of the calendar year.
Student Spouse or Disabled Spouse
If married and, for any month, the spouse is either a full-time student or not able to care for himself
or herself, participant's spouse will be considered to have earned income of $250 a month if there
is one qualifying dependent in the home, or $500 a month if there are two or more qualifying
dependents in the home. Therefore, qualified daycare expenses are reimbursable. If a spouse does
not work, and is not disabled or a full-time student, daycare expenses are not reimbursable.
A spouse is considered to have worked if:
a. He or she was a full-time student during each of 5 months during the calendar year, or
b. He or she was physically or mentally not able to care for him or herself.
A full-time student is one who is enrolled at a school during each of 5 calendar months of the
calendar year, not necessarily consecutive, for the number of hours considered to be a full-time
course of study.
Tax Credit Alternative
ADMINISTRATION 86
DocuSign Envelope ID: 61ACO2E0-5B814CCD-8079-A8CEOFD56332
• Participant should be aware that he may be able to take a federal tax credit of up to 35% of the
amount paid for dependent daycare expenses instead of participating in the dependent daycare
expense reimbursement account.
* Participant may use up to $3,000 of dependent daycare expenses to figure the credit if there is
one qualifying dependent and up to $6,000 if there are two or more qualifying dependents.
* Participant's credit can be as much as $1,200 if there is one qualifying dependent or as much as
$2,400 if there are two or more qualifying dependents.
* The tax credit is a direct reduction of the tax owed to the federal government, unlike the income
exclusion of participating in the dependent daycare reimbursement account. Many states also
provide a state tax credit for dependent daycare expenses.
• Participants should consult with a tax advisor as to whether the tax credit may be more
favorable for them than participating in the dependent daycare expense reimbursement account.
They may also wish to obtain IRS Publication 503 for more information about the federal tax
credit.
Important Tax Information
Regardless of whether employees participate in the dependent daycare plan under Section 125 or
claim the credit on their income tax, they must provide the IRS with the name, address and
taxpayer identification number (TIN) of the dependent dayeare provider(s) by completing Schedule
2 of Form 1040A or Form 2441 and attaching it to their annual income tax return. These
requirements are subject to change by the IRS. Participants should follow current instructions given
by the IRS for preparing thew annual income tax returns. Failure to provide this information to the
IRS could result in loss of the pre-tax exemption for dependent daycare expenses.
What You Need To Know When AFA is the Recordkeeper
Account Set Up
When proper documentation is received to verify that a plan includes flexible spending accounts
and if AFA is the recordkeeper, the Flex Administration Department will begin the plan setup.
A plan record will be established for the group and individual accounts will be entered into the
flex database, and the first billing will be sent to you at this time.
You will be provided with a report to verify the information we received and the accounts that
have been established. This report' should be checked with your records and any differences
between the two clarified.
Voucher Packets
Each employee enrolled in one or both of the flexible spending accounts will receive notice that
the voucher packet is available to be downloaded from our web site, www.afadvantaee.com®.
The packet includes the following:
• Instructions for filing for reimbursement; and,
• A summary of expenses eligible for reimbursement;
ADMINISTRATION 87
DocuSign Envelope ID: 61ACO2EO-5B814CCD-8079-ASCEOFD56332
An employee with a qualified expense for reimbursement must submit a completed expense
voucher and the proper documentation for that expense. For reimbursement of medical
expenses, a statement provided by the service provider or an insurance company statement of
benefits must accompany the voucher. Proof of expense documentation must include a
description of the service provided, the date the service was provided, and the fee for the service.
A completed provider acknowledgment form must accompany a request for reimbursement of
dependent daycare expenses.
While AFA prefers to receive original documentation, we will accept copies of expense
documentation or faxed information. If copies are submitted or if the information is faxed, we
reserve the right to require the original materials prior to the actual reimbursement of the
expense. See the packet for more complete instructions. Forms are also available on our Web
site, www.afadvantaee.com®.
Monthly Billine and Denosit
Each month a billing report will be mailed to you. This report will reflect the salary reduction
contributions due for the plan and the administration fees for the month, if any.
If any changes were made during the month, make the appropriate changes on the billing report
and attach a copy of the Change Verification Form. Notify ANA immediately when an
employee terminates — include the date of termination. If you have purchased AFAs
uniform coverage risk policy, and a participant is overpaid because we were not notified of
termination, you must make American Fidelity whole for that loss.
If you have purchased AFAs Uniform Coverage Risk policy, no changes may be made to
the Health FSA except by written agreement between the Recordkeeper and Employer. If
changes are allowed, the risk for the group reverts back to the Employer, and a Flexible
Spending Account Agreement must be signed showing that any shortages to the account
will be taken care of by you. Premium will be refunded upon receipt of the signed Flexible
Spending Account Agreement.
The billing report should be returned to the AFA recordkeeper with a check for the total
amount due. Upon receipt, AFA will update the employer account and the individual
records of each participant.
Expense Reimbursement Voucher Processing
Actual reimbursements are handled as described below:
NOTE: No reimbursements will be made to participants until the first contribution of each
plan year is received from you. This is especially important for a group that deducts for
less than 12 months (i.e., 10 months) and the first months of the plan year are the months
in which the deduction is skipped.
ADMINISTRATION 88
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-A8CEOF056332
Dependent Daycare:
Dependent daycare expense reimbursement' checks will be limited to the amount
available in a participant's account for reimbursement. If the amount of the voucher(s)
submitted exceeds the amount available in the participant's account, the participant will
receive reimbursement checks as additional payments are received from the employer.
Each participant must submit a voucher plus a dependent daycare acknowledgment form
when making a claim.
Medical Expenses:
The coverage -amount elected by a participant under a Health FSA must be available to
the participant to reimburse qualified expenses for medical care provided during the
current plan year as long as he or she continues paying the proper premium amount
necessary to continue the coverage in force.
Example: 1 If an employee elects to participate in the Health FSA and to set aside
$100.00 per month, the employee will have $1,200.00 available to him for expense
reimbursement as long as account participation continues. This example assumes a
12 -month plan year.
An employer must reimburse a participant's entire expense incurred up to the amount being set
aside for the plan year, even if the amount of the expense(s) exceeds the current balance of the
participant's account.
If an employee remains employed with the employer through the end of the plan year, there will
be no loss to the employer because the employee's contribution will equal the amount reimbursed
by the end of the plan year. The risk shifting occurs when the employee terminates his or her
employment following the reimbursement of the expense larger than the employee's current
account balance. Because of the potential of loss to the employer, the employer must decide if
the group will assume the uniform coverage "insurance" risk or if the group wishes to have AFA
assume the uniform coverage risk.
Claims will be processed as received throughout the month. Upon receipt, claims will be
checked for completeness and validity, and will be entered into the recordkeeping system.
Reimbursement of qualified expenses will then be made. Checks will be forwarded to the
mailing address provided by each participant, or deposited directly into their bank account.
Participants can fax claims to the fax number listed at the beginning of this Guide or on the
voucher form.
IMPORTANT: If AFA insures your plan's uniform coverage risk (you have elected
American Fidelity's Medical Expense Reimbursement Policy coverage), there are
important restrictions on the Health FSA:
1. The maximum insured contribution may not exceed the amount designated in
your plan document;
2. An employee may only change their benefit election amount to stop their
contribution in the event they terminate employment during the plan year. If
employee is rehired within 30 days they may "step back into" the previous
election. If rehired after 30 days, plan participation for the remainder of the
current plan year is prohibited.
ADMINISTRATION 89
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-ABCEOF056332
3. Elections for short plan years (including a new hire coming into the plan mid -plan
year) are limited to a prorated amount [the stated maximum divided by 12 months
X the remaining months in the plan year]. The premium for the risk policy for
short plan years will be prorated using the above formula.
4. Failure to immediately notify AFA of termination of a participant, resulting in
overpayment to that participant, will require that you make AFA whole for any
such overpayment.
5. The risk policy only covers the loss when an employee terminates employment
mid -plan year in the normal course of business and has a negative balance in the
Health FSA. The policy covers only situations where the employee terminates
employment in the normal course of business, and does not cover situations
where there is a technical termination of employment due to a sale of business or
similar transaction, or a layoff and/or reduction in force. Examples of situations
not covered by the risk policy include bankruptcy, sale, or any other loss, of the
business or of any asset, foreclosure, layoff and/or reduction in force, a
terminated employee choosing to remain in the plan via COBRA payments, an
employee out on an unpaid leave of absence (whether Family Medical Leave or
otherwise), or any other reason other than termination of an employee's
employment with the company in the normal course of business.
If any mid -year election changes are allowed for IRS approved status changes in the Health
FSA except for termination of the employee's employment, you must approve the change in
writing and accept the liability for any losses incurred for the account for the current plan
year, that is, the risk for the group reverts back to the you. We will need a signed Flexible
Spending Account Agreement if you do allow changes. All premium for the risk policy will be
returned to you. If changes are allowed for one participant, they must be allowed for every
participant, regardless of whether there may or may not be a loss that you will have to cover. The
plan cannot be discriminatory. IRS rules state that a Health FSA mid -year change can only be
made if the status change that has occurred affects eligibility for the Health FSA. A change in
residence of the employee, spouse or dependent is not a status change that would allow a mid-
year election change to the Health FSA.
When American Fidelity Assurance Company agrees to handle the flexible spending accounts
for your plan, all elected amounts for the plan year must be paid, unless the employee terminates
employment in the normal course of business.
If an employee takes an unpaid leave of absence during the plan year, it is important to
remember that American Fidelity will not reimburse that employee for the current plan year
unless all Health FSA contributions elected by that employee for the plan year are received. For
the policy to remain in effect for an employee on an unpaid leave of absence during the plan
year, you may:
1) allow the employee to prepay his contributions
2) allow the employee to continue the contributions on an after-tax basis. Pre-tax
contributions may resume when the employee returns to work
3) allow the employee to prorate the unpaid elections over the remaining pay periods
in the plan year when he returns to work (assuming that there are remaining pay
periods)
4) make the contributions for the employee.
ADMINISTRATION 90
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-8079-ABCEOFD56332
The Health FSA contributions should be treated as any other insurance premium and you must
make arrangements with the, employee to continue contributions using one of the methods
enumerated above. When American Fidelity insures the Health FSA uniform coverage risk, it is
not an option for employees to stop making their elected contributions. If contributions are not
made prior to the end of the plan year, the employer will be, responsible for any negative balance
on that participant.
Although the dependent daycare flexible spending account allows for a qualified mid -year
election change, failure by participants to make aff elected contributions to the dependent
daycare flexible spending account will result in termination of the participant's coverage as of
the date contributions cease. Daycare claims incurred after contributions cease (i.e., the
coverage period) are not reimbursable, even if funds remain in the flexible spending account.
ADMINISTRATION 91
DocuSign Envelope ID: 61ACO2E0-5BB14CCD-8079-ABCEOFD56332
Flexible Spending Account Claims Handling
While American Fidelity has agreed to be the record keeper for your participants' flexible
spending accounts, you, the Employer, remain the Plan Administrator, as specified in the
Statement of Terms and Conditions of the Flexible Spending Account Arrangement. You should
be aware of the following Department of Labor special rules applicable to medical expense
reimbursement claims:
• Claims must be decided within a reasonable time period, not longer than 30 days after
receipt. (American Fidelity processes claims within 5 days from receipt of the claim);
• The 30 -day time period can be extended by 15 days for certain things, including incomplete
claims;
• Participants will receive written notice of any extension, including the date by which the
administrator is expected to make a decision;
• Participants have 45 days to complete an incomplete claim.
If claims are denied in whole or in part, participants will be furnished a written notice of the
denial, including:
• The specific reason or reasons for the denial;
• Reference to the specific plan provision on which the denial is based;
• Description of any additional information necessary to complete the claim and why such
information is necessary; and,
• Information as to how to appeal the claim, including Participant's right to submit written
comments and have them considered, right to review (on request and at no charge) relevant.
documents and other information and right to file suit under ERISA regarding an adverse
determination after appeal of claim.
As the Plan Administrator, appeals must be made in writing to you, the Employer, within 180
days of the notice of adverse benefit determination. The appeal should include any relevant data,
documents, records and other information relating to the benefits denial. A final decision must
be made not later than 60 days following receipt of the initial written request, unless special
circumstances require more time to reach a decision. The review period may then be extended
by an additional 30 days. Participants must be notified in writing if an extension of the review
period is necessary. If you request additional information, participants have 45 days to respond.
If participants do not provide the requested information within 45 days, you may conclude the
review of the claim based on the information received. If the claim is denied on appeal,
participants have the right to bring a civil action for benefits under Section 502(a) of ERISA.
These rights and the appeal procedure are set out in detail in the sample SPD that is part of this
administration guide, and is also part of the plan document. Failure by a participant to file a
timely appeal will bar the participant from any further review of the benefit denial under these
procedures or in a court of law.
The provisions in the plan document on which the denial is based are Section 8.03(c) and 8.04.
American Fidelity will assist you, if requested, with questions concerning the eligibility for
reimbursement of certain expenses.
ADMINISTRATION 1 92
DocuSign Envelope ID: 61ACO2EO-5B814CCD-8079-A8CEOFD56332
End of P1anYear Processing
Your plan specifies the number of days following the end of the plan year during which a
participant may file claims for qualified expenses incurred during the plan year. Participants
forfeit any amounts not reimbursed for valid expenses at the end of the run-off period. This run-
off period is usually 90 days.
Participants will be sent notice prior to the end of the plan year if they have unused account
balances for which claims have not been received. If, after the end of the plan year and the grace
period if elected by the employer, and the expense run-off period, there are dollars remaining in
the account, the account will be reconciled and handled as explained below. Refunded amounts
may not be returned to the individual participants who forfeited money in the same amount
forfeited for the plan year.
Dependent Dayeare:
You will be sent a check totaling the amount of funds that may remain in the dependent daycare
expense account for your group.
Health FSA:
At the end of the plan year, the Health FSA for your group will be reconciled as follows:
Total Contributions Received
-Total Claims Paid
Amount to be refunded to employer (if end result is greater than $.00) or covered
by AFA uniform coverage risk policy (if end result is less than $.00).
Insured by AFA: If your group's Health FSA risk is insured by AFA (and no changes have
been allowed, including allowing terminated employees to remain in the
plan), and the end result for the year is less than $.00, AFA will cover the
employer's loss. If the participant has been on FMLA or any other leave,
or, an election change has been allowed by the employer, and the
participant has not been making contributions, the employer will be
responsible for any negative balance for that participant. This is explained
in Section III of the Reimbursement Provision of Employer's Medical
Expense Reimbursement Coverage.
Not Insured: If the risk is not insured and the end result for the year is less than $.00, you will
receive a billing in the amount due to AFA for the difference. The amount billed
must be remitted to AFA within 30 days from the date of the billing.
ADMINISTRATION 93
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-A8CEOFD56332
HOW EXPERIENCE GAINS FROM FORFEITURES MAY BE USED
The Flexible Spending Accounts will have an experience gain for a year if the premiums
(contributions) received from participants for the plan year exceed the FSAs total reimbursements
for the plan year.
Experience gains can be used to: (1) defray the plan sponsor's reasonable administrative expenses
(subject to the ERISA discussion for the Health FSA below), (2) used to reduce premiums for the
following year, or (3) may be returned to participants in the form of taxable cash.
If returning the experience gains to the participants as taxable cash, it is permissible to allocate the
returned amounts on a per capita basis, or based on the different coverage levels elected by
participants in the health FSA for the plan year which generated the excess. Experience gains
cannot be returned to the participants based on the amounts forfeited by each participant.
For Health FSA plans subject to ERISA rules, the Department of Labor ("DOL") takes the position
that the participant salary reductions used to pay for health coverage are ERISA plan assets. As
such, they must be used exclusively for the benefit of the participants, or to cover reasonable
administrative expenses, and cannot be forfeited to the plan sponsor/employer. While the DOL is
currently not enforcing ERISA trust or auditing requirements solely on account of the existence of
salary reductions, the DOL continues to view salary reduction contributions as constituting plan
assets. While plan assets may be used to cover administrative expenses, they generally may not
revert to the employer. DCAP forfeitures are not subject to ERISA rules, but should basically
follow the same guidelines if returning forfeited funds to participants.
If the forfeitures are used to cover administrative expenses, the plan sponsor must keep detailed
records showing, at least, (a) the nature of the expense (clearly demonstrating that the expense
relates to the health FSA), (b) the amount of the expense, and (c) the date(s) the expenses were
incurred. In most cases, it is inadvisable to use experience gains to cover in-house administrative
expenses. In contrast, using experience gains to pay the Health FSA claims processing fee of an
outside third -party administrator (TPA) is reasonable.
In summary, use the experience gains to (1) offset reasonable administrative expenses, (2) reduce
premiums for the following year, or (3) return to participants in the form of taxable cash.
Please seek advice from tax or legal consultants as to the best way to handle the forfeitures.
ADMINISTRATION 94
DocuSign Envelope ID: 61ACO2EO-5B814CCD-BO79-A8CEOFD56332
COBRA REQUIREMENTS
Health FSAs must comply with COBRA and offer COBRA continuation rights to qualified
beneficiaries who lose their Health FSA coverage as a result of a qualifying event, unless
COBRA's small employer exception applies. COBRA may not apply to some participants.
IRS COBRA regulations provide an exception from having to offer COBRA for Health FSAs
that are excepted from HIPAA (there is other medical coverage available and the employer is not
contributing to the Health FSA, and the Health FSA offers no insurance protection —just a tax
benefit) and have an annual COBRA premium that equals or exceeds the annual coverage
amount elected. There are two exceptions for qualifying Health FSAs: (1) COBRA does not
have to be offered to qualified beneficiaries who have overspent their account as of the date of
the qualifying event, but COBRA must be offered to those who have underspent their account,
and, (2) while COBRA must be offered to those who have underspent their account, such
continuation coverage will terminate at the end of the plan year in which the qualifying event
occurs. In other words, if the employer is not contributing to the Health FSA and if the
employee is exempt from HIPAA (has other medical coverage), then you are only required to
offer COBRA through the end of the cafeteria plan year. As of the date of termination of
employment, if the employee has taken more out of the account than he has contributed, then
you do not have to offer any COBRA.
The Health FSA elected contributions being set aside each month are treated as insurance
premiums and the elected contributions must continue to be paid to the account in order for
coverage to continue. If an employee terminates employment without incurring adequate
expenses for reimbursement, that employee may continue premium payments to the account on
an after-tax basis to continue coverage under the plan. Otherwise, the participant must forfeit
any unused amounts remaining in the account. Expenses occurring after coverage has ceased
cannot be reimbursed.
Terminated employees who choose to remain in the plan after termination can be offered the
option of voluntarily pre -taxing the remaining FSA contributions for the plan year in lieu of
COBRA. The risk for a terminated employee who chooses COBRA reverts back to the
employer, as it is not covered under the Uniform Coverage Risk policy.
NOTE: Employees who change their hours and drop below the eligibility requirements for
participation will not be allowed to pre-tax their premiums. If they choose to continue
participation in the flexible spending accounts, they will have to pay for the coverage on an
after-tax basis. This scenario is not covered by the risk policy and the uniform coverage
risk for that participant will revert back to the employer for the remainder of the plan
year.
ADMINISTRATION 95
DocuSign Envelope ID: 61ACO2EO-5BB14CCD-BO79-ASCEOFD56332
FLEX CONNECTION®
FlexConnection® is an automated voice response system that allows you to make inquiries about
your Health FSA and/or Dependent Daycare Account from your touch-tone telephone when you
choose to call - not just during our office hours!
By calling F1exConnection® you can:
*Obtain current account balances
*Review the last activity in your account:
date and amount of your last reimbursement
date that your last claim was entered and the claim amount
date and amount of your last deposit
*Order additional reimbursement forms
It's easy! When you call our toll free number,
1-800-437-1011
By using the buttons on your touch-tone telephone, just enter your Social Security number and
let F1exConnection® guide you through the process.
VISIT US ON THE WEB AT AMERICANFIDELITY.COM®
By clicking on the "Section 125/Flex/HRA Services" link on the left side of our home page
you will have easy access to FSA Reimbursement Guidelines, Flexible Spending
Account Information Packets, information for Section 125 plan administrators, as well
as updated versions of this Administration Guide. To access any password -protected
information, simply enter the code "sect125" for our business employers or "125plan" for our
education employers.
You will also be able to retrieve and print the following forms for your Flexible Spending
Account(s) at your convenience:
♦ Expense Reimbursement Vouchers
♦ Dependent Daycare Acknowledgement Forms
♦ Direct Deposit Authorization Forms
Customers who choose to register for an on-line account (requires additional security) can access
information about their American Fidelity products and flex spending accounts at their
convenience, 24 hours a day. Some of the information and services you will find on the OnLine
Service Center are:
• Detailed information about your insurance policies
• Up-to-date annuity account information
• Flexible spending account information and balances
• Status of claims you may have filed
• Downloadable claims forms
• Change your address or phone number online
If you have any questions, please give us a call at 1-800-662-1113.
ADMINISTRATION 96
MID -YEAR ELECTION CHANGES
The following election change chart may be used to help you determine if changes in Section 125 benefit selections are allowed under current IRS Section 125 interpretation. The
chart assumes that your plan allows for mid year election changes on account of and consistent with a valid status change or other qualified event, and further assumes that the
employee can demonstrate that the requested mid -year change is on account of and consistent with the change In status. Permitted election changes generally Include both a
change In benefits and In salary reduction. For purposes of this chart, "coverage category" means employee only, family, etc. The chart is based on a change of status, or other
qualified event, as defined in Final Treas.Reg. Section 1.1254. NOTE: MID -YEAR ELECTION CHANGE RULES ARE NOT APPLICABLE TO HEALTH SAVINGS
ACCOUNTS (MSAs), EVEN WHEN HSAs ARE INCLUDED IN THE SECTION 125 PLAN.
Major Medical
Dental/Vision
Health FSA
Dependent Care
Employee Group Life,
FSA
AD&D and Disability
I. Chan a in Status
A. Change in Employee Legal marital Status
1. Gain Spouse (Marriage)
Employee may enroll or increase election
Same as previous column.
" Employee may enroll or
Employee may enroll or
Employee may enroll, Increase,
for newly eligible spouse and dependent
(HIPAA special enrollment
increase election for newly
Increase to accommodate
decrease or cease coverage even
children (Note: Under IRS "tag -along"
likely does not apply.)
eligible spouse or
newly eligible dependents or
when eligibility is not affected.
interpretation allows new and pre-existing
dependents, or likely
decrease or cease coverage
dependents to be enrolled); coverage
decrease election If
If new spouse is not
option change may be made (e.g., HMO
employee or dependents
employed or makes a DCAP
to PPO). Employee may revoke or
become eligible under new
coverage election under
decrease employee's or dependent's
spouse's health plan
spouse's plan.
coverage only when such coverage
(HIPAA special enrollment
becomes effective or is increased under
rights do not apply if
spouse's plan. (HIPAA special
health FSA is excepted
enrollment may apply to marriage.)
benefit.)
2. Lose spouse (divorce,
Employee may revoke election only for
Same as previous column.
` Employee may decrease
Employee may enroll or
Employee may enroll, Increase,
legal separation,
spouse; coverage option change may be
(HIPAA special enrollment
election to reflect loss of
Increase to accommodate
decrease or cease coverage even
annulment, death of
made (e.g., HMO to PPO); may elect
likely does not apply.)
spouse's eligibility.
newly -eligible dependents
when eligibility is not affected.
spouse)
coverage for self or dependents who lose
Employee may enroll or
(e.g., due to death or
eligibility under spouse's plan if such
increase election where
divorce of spouse) cease
individual lost eligibility because of
coverage is lost under
coverage if eligibility is lost
divorce, legal separation, annulment or
spouse's health plan.
due to dependent now
death. (Note: Under IRS "tag -along" rule,
(HIPAA special enrollment
residing with ex-spouse.
any dependents may be enrolled so long
rights do not apply if
as at least one dependent has lost
health FSA is excepted
coverage under spouse's plan.)
benefit.)
" NOTE: American Fidelity's model plan document does NOT allow any changes to the health FSA for any reason
except termination of employment (unless there is a signed agreement between the employer and the flex recordkeeper),
even though the final regulations allow for mid -year election changes due to a valid change in status or other qualified
event.
Rev. 10105
ADMINISTRATION
A-1
A
Event
Major Medical
DentalNision
Health FSA
Dependent Care
Employee Group Life,
FSA
ADBD and Disability
B. Change in the Number of Employee's Dependents
1. Gain Dependent (birth,
Employee may elect or Increase
Same as previous column.
`Same as previous
Employee may enroll or
Employee may enroll, increase,
adoption)
coverage for newly acquired dependent
(Note: HIPAA special
column. (HIPAA special
Increase to accommodate
decrease or cease coverage even
(and any other dependents who were not
enrollment likely does not
enrollment rights do not
newly eligible dependents
when eligibility is not affected.
previously covered under IRS "tag -along"
apply.)
apply If health FSA is
(and any other dependents
rule); coverage option change (e.g., HMO
excepted benefit.)
who were not previously
to PPO) may be made; employee may
covered under IRS " tag -
revoke or decrease employee or
along" rule).
dependent's coverage if employee or
dependent becomes eligible under
spouse's plan. HIPAA special enrollment
rights apply to birth and adoption.
2. Lose Dependent (death)
Employee may drop coverage only for the
Same as previous column.
'Employee may decrease
Employee may decrease
Employee may enroll, increase,
dependent that loses eligibility; coverage
or cease election for
election for dependent that
decrease or cease coverage even
option change (e.g., HMO to PPO) may
dependent that loses
loses eligibility.
when eligibility is not affected.
be made.
eligibility.
C. Change in Employment Status of Employee, Spouse, or Dependent That
Affects Eligibility
1. Commencement of Employment by Employee, Spouse, or Dependent (or Other Change in Employment Status) That Triggers
Eligibility
a. Commencement of
Provided eligibility was gained for this
Same as previous column.
'Same as previous
Same as previous column.
Employee may enroll, Increase,
Employment by Employee
coverage, employee may add coverage
column.
decrease or cease coverage even
or Other Change In
for employee, spouse, or dependents;
when eligibility is not affected.
Employment Status (e.g.,
coverage option change (e.g., HMO to
PT to FT, hourly to salaried,
PPO) may be made.
etc.) Triggering Eligibility
Under Component Plan
b. Commencement of
Employee may revoke or decrease
Same as previous column.
'Employee may decrease
Employee may make or
Employee may enroll, Increase or
Employment by Spouse or
election as to employee's, spouse's, or
or cease election if gains
Increase election to reflect
decrease or cease coverage even
Dependent Or Other
dependent's coverage if employee,
eligibility for health
new eligibility (if spouse
when spouse or dependent's
Employment Event
spouse or dependent is added to
coverage under spouse's
previously did not work).
eligibility is not affected.
Triggering Eligibility Under
spouse's or dependent's plan; coverage
or dependent's plan.
Employee may revoke
Spouse's or Dependent's
option change (e.g., HMO to PPO) may
election for dependent's
Plan
be made.
coverage if dependent is
added to spouse's plan.
See note at the bottom of page A -I
ADMINISTRATION A-2
a
0
0
c
N
r
m
0
a
m
A
Event
Major Medical
DentalNision
Health FSA
Dependent Care
Employee Group Life,
I
FSA
AD&D and Disability
2. Termination of Employment by Employee, Spouse, or Dependent (or Other Change in Employment -status) That Causes Loss of Eligibility
a. Termination of
Employee may revoke or decrease
Same as previous column.
*Same as previous
Employee may revoke or
Employee may enroll, Increase,
Employee's Employment or
election for employee, spouse, or
column.
decrease election to reflect
decrease, or cease coverage even
Other Change in
dependent that loses eligibility under the
loss of eligibility.
when eligibility is not affected.
Employment Status (e.g.,
plan; coverage option change (e.g., HMO
unpaid leave, FT to PT,
to PPO) may be made.
strike, salaried to hourly,
etc.) Resulting In a Loss of
Eligibility
I. Termination and Rehire
Prior elections at termination are
Same as previous column.
'Same as previous
Same as previous column.
Same as previous column.
Within 30 Days
reinstated unless another event has
column.
occurred that allows a change.
(Alternatively, employer may prohibit
participation until next plan year.)
It. Termination and Rehire
Employee may make new election.
Same as previous column.
'Same as previous
Same as previous column.
Same as previous column.
After 30 Days
column.
b. Termination of Spouse's
Employee may enroll or Increase election
Same as previous column.
' Employee may enroll or
Employee may enroll or
Employee may enroll, increase
or Dependent's
for employee, spouse or dependents who
(Note: HIPAA special
increase election to elect
Increase if spouse or
decrease or cease coverage even
Employment (or other
lose eligibility under spouse or
enrollment rights likely do
loss of eligibility for health
dependent loses eligibility
when eligibility is not affected.
change In employment
dependent's employer's plan. Coverage
not apply.)
coverage.
for DCAP. Employee may
status resulting In a loss of
option change (e.g., HMO to PPO) may
decrease or cease election
eligibility under their
be made. In addition, other previously
(HIPAA special enrollment
to reflect loss of eligibility for
employer's plan)
eligible dependents may also be enrolled
rights do not apply if
coverage if spouse stops
under "tag -along" rule. Note: HIPAA
health FSA Is excepted
working.
special enrollment rights may apply upon
benefit.)
other loss of coverage.
See note at the bottom of page A -I
ADMINISTRATION A-3
iea
Event
Major Medical
Dental/Vision
Health FSA
Dependent Care
Employee Group Life,
FSA
ADBD and Disability
D. Event Causing Employee's Dependent to Satisfy or Cease to Satisfy Eligibility Requirements
1. Event by Which
Employee may enroll or Increase election
Same as previous column.
'Employee may increase
Employee may increase
Employee may enroll, increase,
Dependent Satisfies
for newly eligible dependent. In addition,
election or enroll only if
election or enroll to take into
decrease or cease coverage even
Eligibility Requirements
other previously eligible dependents may
dependent gains eligibility
account expenses of
when eligibility is not affected.
Under Employer's Plan
be enrolled under "tag -along" rule.
under health FSA.
affected dependent.
(attaining a specified age,
Coverage option change (e.g., HMO to
becoming single, becoming
PPO) may be made.
a student, etc.)
2. Event by Which
Employee may decrease or revoke
Same as previous column.
*Employee may decrease
Employee may decrease or
Employee may enroll, increase,
Dependent Ceases to
election only for affected dependent;
or revoke election to take
drop election to take into
decrease or cease coverage even
Satisfy Eligibility
coverage option change (e.g., HMO to
Into account ineligibility of
account expenses of
when eligibility is not affected.
Requirements Under
PPO) may be made.
expenses of affected-
affected dependent.
Employer's Plan (attaining a
dependent, but only if
specified age, getting
eligibility is lost. If
married, ceasing to be a
dependent remains a tax
student, etc.)
dependent and the health
FSA provides that the
dependent's expenses
remain eligible for
reimbursement, then the
employee could increase
health FSA election.
E. Change in Place of Residence of Employee,
Spouse, or Dependent
1. Move Triggers Eligibility
Employee may enroll or increase election
Same as previous column.
No change allowed, even
N/A. Dependent care
Employee may enroll, Increase,
for newly eligible employee, spouse, or
if underlying health
eligibility is not generally
decrease or cease coverage even
dependent. Other previously eligible
coverage change occurs.
affected by place of
when eligibility is not affected.
dependents may be enrolled under "tag-
residence, but see change
along" rule. Coverage option change
in coverage, below.
(e.g., HMO to PPO) may be made.
2. Move Causes Loss of
Employee may revoke election or make
Same as previous column.
No Change allowed, even
N/A. Dependent care
Employee may enroll, increase,
Eligibility (e.g., employee or
new election only if the change in
if underlying health
eligibility is not generally
decrease or cease coverage even
dependent moves outside
residence affects employee, spouse or
coverage change occurs.
affected by place of
when eligibility is not affected.
HMO service area)
dependent's eligibility for coverage
residence, but see change
option.
In coverage, below.
* See note at bottom of page A-1
ADIVIMSTRATION A-4
Q
Event
Major Medical
DentalNision
Health FSA
Dependent Care
Employee Group Life,
FSA
AD&D and Disability
II. Cost Changes with
Plan may automatically increase or
Same as previous column.
No Change allowed.
Application is unclear.
Same as previous column.
Automatic
decrease (on a reasonable and
Presumable, plan may
Increase/Decrease In
consistent basis) affected employees'
automatically Increase or
Elective Contributions
elective contributions under the plan, so
decrease (on a reasonable
Including employer
long as the terms of the plan require
and consistent basis)
motivated changes and
employees to make such corresponding
affected employees' elective
changes In employee
changes.
contributions under the plan,
contribution rates
so long as the terms of the
plan require employees to
make such corresponding
changes.. -
III (a). Significant Cost
Employees may increase election
Same as previous column.
No Change allowed.
Same as Major Medical
Same as previous column.
Increase
correspondingly, OR revoke election and
column, except no change
elect coverage under another benefit
can be made when the cost
package option providing similar
increase is imposed by a
coverage. If no option providing similar
dependent care provider
coverage is available, employee may
who is a relative of the
revoke election. Tag -along rule may
employee.
apply.
III (b). Significant Cost
Employees may elect coverage (even if
Same as previous column.
No Change allowed.
Same as Major Medical
Same as previous column.
Decrease
they had not previously participated) with
column, except no change
decreased cost, and may drop previous
can be made when the cost
election for similar coverage option. Tag-
decrease is imposed by a
along rule may apply,
dependent care provider
who is a relative of the
employee.
IV (a). Significant
Affected participant may revoke election
Same as previous column.
No Change allowed.
Election change may be
Same as previous column.
Curtailment of Coverage
for curtailed coverage and make new
made whenever there is a
(Without Loss of Coverage)
prospective election for coverage under
change in provider or a
another benefit package option that
change in hours of
provides similar coverage. Tagalong
dependent care.
rule may apply.
IV(b) Significant
Affected participant may revoke election
Same as Major Medical.
No Change allowed.
Election change may be
Same as previous column.
Curtailment (With Loss of
for curtailed coverage and make new
made when there Is a
'
Coverage)
prospective election for coverage under
change in provider, or
another benefit package option that
change in hours of
provides similar coverage, ordrop
dependent care.
coverage if no similar benefit package
option is available. Tag -along rule may
apply.
* See note at bottom of page A -I
ADMINISTRATION A-5
A
Event
Major Medical
DentalNision
Health FSA
Dependent Care
I Employee Group Life,
FSA
AD&D and Disabilit
V. Addition or Significant Improvement of Benefit Package
Option
Addition of New Benefit
Eligible employees (whether currently
Same as previous column.
No Change allowed.
Eligible employees (whether
Same as previous column.
Package Option or Other
participating or not) may revoke their
currently participating or not)
Coverage Option
existing election and elect the newly
may revoke their existing
added (or newly improved) option. Tag-
election and elect the newly
along rule may apply.
added (or newly improved)
option.
VI. Change In Coverage of Spouse or Dependent Under Any Employer's Cafeteria Plan
(In order for election changes to be permitted under this exception, the election change must be on account of and correspond with the change in coverage under the other employer's cafeteria
plan or qualified benefits plan. In addition, either (a) the plan of the other employer must permit elections specified under the Regulations and an election must actually be made under such plan;
or (b) the employee's cafeteria plan must permit elections for a period of coverage different from that under the other employers plan ('election lock" rule).
1. Other Employer's Plan
Employee may decrease or revoke
Same as previous column.
No Change allowed.
Employee may decrease or
Same as previous column.
Increases Coverage
election for employee, spouse, or
revoke election for
dependents if employee, spouse, or
employee, spouse, or
dependents have elected or received
dependents if employee,
corresponding increased coverage under
spouse, or dependents have
other employers plan.
elected or received
corresponding increased
coverage under other
employers plan.
2. Other Employers Plan
Employee may enroll or increase election
Same as previous column.
No Change allowed.
Employee may enroll or
Same as previous column.
Decreases or Ceases
for employee, spouse, or dependents if
increase election for
Coverage
employee, spouse, or dependents have
employee, spouse, or
elected or received corresponding
dependents if employee,
decreased coverage under other
spouse, or dependents have
employers plan. Tag-along rule may
elected or received
apply.
corresponding decreased
coverage under other
employers plan.
3. Open Enrollment Under
Corresponding changes can be made
Corresponding changes can
No Change allowed.
Corresponding changes can
Corresponding changes can be
Plan of Other Employer
under employers plan.
be made under employers
be made under employers
made under employers plan.
plan.
plan.
VII. Loss of Coverage
Employee may enroll or Increase election
Same as previous column, if
No Change allowed.
No Change allowed.
No Change allowed.
Under Group Health
for employee, spouse, or dependent if
constitutes a group health
Plan of Governmental or
employee, spouse, or dependent loses
plan (e.g., may add dental
Educational Institution
coverage under group health plan of
coverage if lost dental under
governmental or educational institution.
governmental plan); but
Tag-along rule may apply.
employee cannot add dental
if only lost medical coverage
under governmental plan.
ADMINISTRATION A-6
0
0
n
m
0
0
m
a
Event
Major Medical
Dental/Vision
Health FSA
Dependent Care
Employee Group Life,
FSA
AD&D and Disability
VIII. Changes In 401
No change allowed.
No change allowed.
No change allowed.
No change allowed.
No change allowed.
(k) Contributions
IX. HIPAA Special Enrollment Rights (See related exception for addition of
new dependents)
A Special Enrollment for
Employee may elect coverage for
No change permitted, unless
No change allowed unless
No change allowed.
No change allowed.
Loss of Other Health
employee, spouse, or dependent who
plan is subject to HIPPAA.
subject to HIPAA.
Coverage
has lost other coverage (COBRA
coverage exhausted or terminated, no
longer eligible: for non -COBRA coverage
.
or employer contributions for non -
COBRA coverage terminated, etc.) Tag-
along rule may apply.
B. Special Enrollment for
Employee may elect coverage for
No change permitted, unless
No change allowed unless
No change allowed.
No change allowed.
Acquisition of New
employee, spouse, or dependent. Under
plan is subject to HIPPAA.
plan is subject to HIPAA.
Dependent by Birth,
tag -along rule, election of coverage may
Marriage, Adoption, or
also extend to previously eligible (but not
Placement for Adoption. (If
yet enrolled) dependents.
newborn or newly -adopted
child is enrolled under
HIPAA's special rules, child's
coverage may be retroactive
to dale of birth, adoption, or
placement for adoption;
employee may change salary
reduction election to pay for
extra cost of child's coverage
retroactive to date of birth,
adoption, or placement for
adoption. For marriage,
coverage is effective
prospectively.)
X. COBRA Events
Employee may Increase pre-tax
Same as previous column.
'Same as previous
No change allowed.
No change allowed.
'
contributions under employer's plan for
column.
'
coverage if COBRA event (or similar
state law continuation coverage event)
occurs with respect to the applicable
health plan of the employee, spouse, or
dependents with respect to which the
COBRA qualifying event occurred (such
as a loss of eligibility for regular coverage
due to loss of dependent status or a
reduction in hours, etc.) and if applicable,
the Individual still qualifies as a tax
dependent of employee.
* See note at bottom of page A-1
ADMIAIISTRATION
A-7
a
Event
Major Medical
Dental/Vision
Health FSA
Dependent Care
Employee Group Life,
7
FSA
AD&D and Disability
XI. Judgment, Decree, or Order
A. Order That Requires
Employee may change election to
Same as previous column.
Same as previous column.
No change allowed.
No change allowed.
coverage for the Child
provide coverage for the child. Tag -along
Under Employee's Plan
rule may apply.
B. Order That Required
Employee may change election to cancel
Same as previous column.
Same as previous column.
No change allowed.
No change allowed.
Spouse, Former Spouse,
coverage for the child.
or Other Individual to
Provide Coverage for the
Child
XII. Medicare or Medicaid
A. Employee, Spouse, or
Employee may elect to cancel or reduce
Unlikely that employee can
'Employee may decrease
No change allowed.
No change allowed.
Dependent Enrolled in
coverage for employee, spouse, or
elect to drop dental or vision
or revoke election under
Employers Accident or
dependent, as applicable.
coverage due to consistency
employer plan, or
Health Plan Becomes
requirement.
employee could increase
Entitled to Medicare or
election if
Medicaid (other than
Medicare/Medicaid
coverage solely for
coverage is less
pediatric vaccines)
comprehensive than
employer plan.
B. Employee, Spouse, or
Employee may elect to commence or
Unlikely that employee can
Employee may commence
No change allowed.
No change allowed.
Dependent Enrolled Loses
increase coverage for employee, spouse,
elect to add dental or vision
or increase election under
Eligibility for Medicare or
or dependent, as applicable.
coverage due to consistency
employer plan, or
Medicaid (other than
Tag -along rule may apply allowing the
requirement.
decrease or revoke
coverage solely for
employee who loses individual coverage
election where
pediatric vaccines)-
to add coverage for family members as
Medicare/Medicaid
well.
coverage is more
comprehensive than
employer plan.
ADMINISTRATION A-8
a
See note at the bottom of gaffe A-1
Event
Major Medical
Dental/Vision
Health FSA
Dependent Care
Employee Group Life,
FSA
AD&D and Disability
XIII. FMLA Leave
(Employees can fund this coverage by (1) pre -paying their contribution obligations on a pre -lax basis (so long as the leave does not straddle two plan years); (2) making contributions on a month -by -
month basis (pre-tax If they are receiving salary continuation payments); or, (3) catching up on their contributions upon returning from the leave).
A. Employee's Commencement
Employee can make same election
Same as previous column
'Same as previous column
Employee may revoke
Same as previous column.
of FMLA Leave
changes as employee on non-FMLA
election and make another
leave. In addition, an employer must
election as provided under
allow an employee on unpaid FMLA
FMLA.
leave either to revoke coverage or to
continue coverage but allow employee to
discontinue payment of his or her share
of the contribution during the leave (the
employer may recover the employee's
share of contributions when the
employee returns to work). FMLA also
allows an employer to require that
employees on paid FMLA leave continue
coverage 4 employees on non-FMLA
paid leave are required to continue
coverage.
B. Employee's Return from
Employee may make a new election if
Same as previous column
'Same as previous
Employee may make a new
Same as previous column.
FMLA Leave
coverage terminated while on FMLA
column. Employee
election if coverage
leave. In addition, an employer may
returning from leave
terminated while on FMLA
require an employee to be reinstated in
whose coverage has
leave. In addition, an
his or her election upon return from leave
lapsed can resume prior
employer may require an
If employees who return from a non-
coverage level and make
employee to be reinstated in
FMLA leave are required to be reinstated
up contributions, or at a
his or her election upon
in their elections.
level reduced pro rata for
return from leave if
missed contributions.
employees who return from
a non-FMLA leave are
required to be reinstated in
their elections.
CONSISTENCY REQUIREMENTS (applies to the qualified status changes, pages A-1 -A-4.)
GENERAL CONSISTENCY RULE: The requested change must be on account of and correspond with a change In status that affects eligibility for coverage under an employer's plan.
SPECIAL CONSISTENCY RULES:
1. Exception for Group Term Life, Disability and AD&D Coverage: A participant may increase or decrease life, disability and AD&D coverage for any change in status
event or other qualified event, even though eligibility under the plan is not gained or lost.
2. Exception for Dependent Care and Adoption Assistance Expenses: The employee can make an election change if (a) the election change is on account of and
corresponds with a change in status affecting eligibility of coverage under an employers plan, (b) the election change is on account of and corresponds with a change
In status affecting eligibility of dependent care expenses under Section 129, or (c) the election change Is on account of and corresponds with a change In cost
of coverage provided under the employer's plan. No cost changes are allowed if the daycare provider is a relative. Note that the general consistency rule applies to
dependent care and adoption assistance benefits as well, to the extent it permits election changes that would not be permitted by the special consistency requirements.
3. Exception for Loss of Spouse's or Dependent's Eligibility: If the change in status is the employee's divorce, annulment or legal separation, the death of a spouse or
dependent, or a dependent that ceases to satisfy eligibility requirements for the coverage, the employee may cancel coverage for the affected person only.
4. Exception for Gain of Eligibility Under Another Employer's Plan: If the employee, spouse or dependent gains eligibility for coverage under another employers cafeteria
plan or qualified benefit plan as a result of a change in marital or employment status, the employee can cease or decrease coverage for that individual only if coverage
for that individual becomes effective or is increased under another employer's plan.
ADMINISTRATION A-9
A
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-8079-ABCEOFD56332
AMERICAN FIDELITY IIII
a different opinion
Healthcare Flexible Spending Account Benefits Debit Card
Rules of Participation
• The Benefits Debit Card may only be used at qualified locations that provide medical products and
services.
• If a medical provider does not accept the Benefits Debit Card, you will need to pay the expense and
submit a voucher for reimbursement to American Fidelity.
• If American Fidelity's requests for receipts are not answered in a timely manner or if you pay for an
ineligible expense, access to a Benefits Debit Card will be blocked and you may need to pay back the
amount of the expense.
• If you do not pay back the plan for an ineligible expense in a timely manner, your Employer will be
notified. Your Employer may make an after-tax deduction from your paycheck or adjust a W-2 to
make a correction to reflect the ineligible expense.
• If an expense is greater than the amount available in the Healthcare FSA, your card swipe will be
denied.
• You will not receive a new card each year. Each year in which participation continues, the new
election amount will be loaded to the existing card. Cards will expire 3 years from the day of issue.
• Dependents receiving a Benefits Debit Card may only include a spouse and eligible tax dependents,
including adult children who are at least age 18 as of the first day of the plan year.
• Dependents with a Benefits Debit Card will have access to all Healthcare FSA information available
to you, including protected health information.
• If a dependent loses tax dependent status, you must notify American Fidelity immediately and the
dependent's card will be terminated.
I acknowledge that:
I have received a copy of the Rules of Participation and understand and agree to the terms and conditions of participation in the
Benefits Debit Card.
I certify (1) the Benefits Debit Card will only be used to pay for the eligible medical expenses of myself, my spouse, and my dependents;
(2) the Benefits Debit Card will not be used for expenses that have already been reimbursed; (3)1 will not seek reimbursement under
any other health plan for expense paid for with the Benefits Debit Card; and (4) 1 will acquire and keep sufficient documentation for
expenses paid with the Benefits Debit Card.
Participant Name (Printed):
Participant SSN:
Participant Signature and Date:
Employer Name:
SB -19343-0318
DocuSign Envelope ID: 61ACO2E05B61-4CCO-8079-A8CEOFD56332
SAMPLE PLAN DOCUMENT
SECTION 125
FLEXIBLE BENEFIT PLAN
racuea plan document and adoption agreement are being provided for illustrative
res only. Because of differences in facts, circumstances, and the laws of the various
interested parries should consult their own attorneys. This document is intended as a
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-8079-A8CEOFD56332
SECTION 125 FLEXIBLE BENEFIT PLAN
ADOPTION AGREEMENT
The undersigned Employer hereby adopts the Section 125 Flexible Benefit Plan for those
Employees who shall qualify as Participants hereunder. The Employer hereby selects the
following Plan specifications:
A. EMPLOYER INFORMATION
Name of Employer:
Address:
Employer Identification Number:
Nature of Business:
Name of Plan:
Plan Number:
B. EFFECTIVE DATE
Original effective date of the Plan:
If Amendment to existing plan,
effective date of amendment:
KODIAK ISLAND BOROUGH
710 MILL BAY RD
KODIAK, AK 99615
92-0030845
MUNICIPALITY
KODIAK ISLAND BOROUGH FLEXIBLE
BENEFIT PLAN
502
July 1, 2002
July 1, 2018
C. _ELIGIBILITY REQUIREMENTS FOR PARTICIPATION
Eligibility requirements for each component plan under this Section 125 document will
be applicable and, if different, will be listed in Item F.
Length of Service:
First day of the month following
employment.
Minimum Hours: All employees with 40 hours of service or
more each week. An hour of service is each
hour for which an employee receives, or is
entitled to receive, payment for performance
of duties for the Employer.
Age:
Minimum age of 0 years.
D. PLAN YEAR The current plan year will begin on July 1,
2018 and end on June 30, 2019. Each
subsequent plan year will begin on July 1
and end on June 30.
DocuSign Envelope ID: 61ACO2EO-5B814CCD-BO79-A8CEOFD56332
E.
Non -Elective Contributions:
Elective Contributions
(Salary Reduction):
The maximum amount available to each
Participant for the purchase of elected
benefits with non -elective contributions will
be:
Employer may furnish a non -elective
contribution as shown in the enrollment
materials. Employer pays benefits per
negotiated agreement.
The Employer may at its sole discretion
provide a non -elective contribution to
provide benefits for each Participant under
the Plan. This amount will be set by the
Employer each Plan Year in a uniform and
non-discriminatory manner. If this non -
elective contribution amount exceeds the
cost of benefits elected by the Participant,
excess amounts will not be paid to the
Participant as taxable cash.
The maximum amount available to each
Participant for the purchase of elected
benefits through salary reduction will be:
100% of compensation per entire plan year.
Each Participant may authorize the
Employer to reduce his or her compensation
by the amount needed for the purchase of
benefits elected, less the amount of non -
elective contributions. An election for
salary reduction will be made on the benefit
election form.
DocuSign Envelope ID: 61ACO2EO-5BB1-4CCD-B079-A8CEOFD56332
F. AVAILABLE BENEFITS: Each of the following components should be considered a
plan that comprises this Plan.
1. Group Medical Insurance -- The terms, conditions, and
limitations for the Group Medical Insurance will be as set forth in the
insurance policy or policies described below: (See Section V of the Plan
Document)
Alaska Electrical Health & Welfare Fund
American Fidelity Assurance Company Accident Only
Eligibility Requirements for Participation, if different than Item C.
2. Disability Income Insurance -- The terms, conditions, and limitations for the
Disability Income Insurance will be as set forth in the insurance policy or policies
described below: (See Section VI of the Plan Document)
N/A
Eligibility Requirements for Participation, if different than Item C.
3. Cancer Coverage -- The terns, conditions, and limitations for the Cancer
Coverage will be as set forth in the insurance policy or policies described below:
(See Section V of the Plan Document)
American Fidelity Assurance Company C-11 and subsequent plans.
Eligibility Requirements for Participation, if different than Item C.
4. DentaWision Insurance -- The terms, conditions, and limitations for the
Dental/Vision Insurance will be as set forth in the insurance policy or policies
described below: (See Section V of the Plan Document)
Alaska Electrical Health & Welfare Fund Vision
Alaska Electrical Health & Welfare Fund Dental
Edibility Requirements for Participation, if different than Item C.
5. Group Life Insurance which will be comprised of Group -term life insurance
and Individual term life insurance under Section 79 of the Code.
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-A8CEOFD56332
The terms, conditions, and limitations for the Group Life Insurance will be as set
forth in the insurance policy or policies described below: (See Section VII of the
Plan Document)
N/A
Individual life coverage under Section 79 is available as a benefit, and the face
amount when combined with the group -term life, if any, N/A exceed $50,000.
Eligibility Requirements for Participation, if different than Item C.
6. Dependent Care Assistance Plan -- The terms, conditions, and
limitations for the Dependent Care Assistance Plan will be as set
forth in Section IX of the Plan Document and described below:
Minimum Contribution - $ 0.00 per Plan Year
Maximum Contribution - $ 5000.00 per Plan Year
Recordkeeper: American Fidelity Assurance Company
Eligibility Requirements for Participation, if different than Item C.
N/A
7. Medical Expense Reimbursement Plan -- The terms, conditions, and
limitations for the Medical Expense Reimbursement Plan will be as set
forth in Section VIII of the Plan Document and described below:
Minimum Coverage - $ 0.00 per Plan Year
Maximum Coverage - $ 2650.00 per Plan Year or a Prorated
Amount for a Short Plan Year. In no event may the maximum
exceed the limit as indicated by the IRS in accordance with the
law.
Recordkeeper: American Fidelity Assurance Company
Restrictions: As outlined in Policy G-905/Rl.
Grace Period: The provisions in Section 8.06 of the Plan to permit a Grace
Period with respect to the Medical Expense Reimbursement Plan are not
elected.
Carryover Provision: The provisions in Section 8.07 of the Plan to permit
a Carryover with respect to the Medical Expense Reimbursement Planare
elected.
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-8079-A8CEOFD56332
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this
(Name
icdi/�+f—YYI�
American Fidelity Assurance Company,
a corporation
Signature:
Title: Recordkee er
THIS ACREEMENT IS NULL AND VOID IF ALTERED IN ANY WAY
Document ID #115825 MCP# 65154 Plan #502 State: Alaska Effective Date:
Rev. 12/09 6/19/2018 12:15 AM
IV
DocuSlgn Envelope ID: 61ACO2EO-5BB14CCD-8079-ABCEOFD56332
VV,.\IPTION AGREEMENT
11\VV1
AND APPLICATION FOR
MEDICAL EXPENSE REIMBURSEMENT COVERAGE
As an employer, the undersigned hereby subscribes to a particular agreement in its
present form or as hereinafter amended, known as:
THE NATIONAL EDUCATION ASSOCIATION INSURANCE TRUST
HIGHER EDUCATION INSURANCE TRUST
THE NATIONAL SCHOOL EMPLOYEES INSURANCE TRUST
THE NATIONAL EMPLOYERS INSURANCE TRUST
THE NATIONAL PUBLIC EMPLOYEES INSURANCE TRUST
THE NATIONAL SERVICE INDUSTRY INSURANCE TRUST
THE NATIONAL BUSINESS INSURANCE TRUST
In addition, the employer hereby makes application for Medical Expense Reimbursement
coverage as issued by American Fidelity Assurance Company.
Name of Employer: KODIAK ISLAND BOROUGH
Address: 710 MILL BAY RD
City: Kodiak State: AK Zip: 99615
Effective Date of Coverage:
July 1, 2018
The maximum plan year reimbursement per participant will be the amount indicated in the plan
document in Section F. 7. In no event can the maximum exceed the limit as indicated by the IRS
in accordance with the law.
Annual Premium: In Kind and Administrative Services provided to American Fidelity Assurance
Company by Employer. These services include making employment information, payroll
information, employees, and space available to American Fidelity Assurance Company to
facilitate enrollments.
We are acquainted with the eligibility rules and we understand that no coverage is in force until
this subscription and application have been approved by both the Trustee and Underwriter.
Signed
Signature:
Title: /c/ C'�-t✓yV // ° / (/�' y //�
IN-KIND/TRUST 07/17 Document ID #115823 MCP #65154 Plan #502 6/19/2018 12:14 AM
DocuSign Envelope ID: 61ACO2E0-5B81-4CCD-8079-A8CEOFD56332
To Recordkeeper:
American Fidelity Assurance Company
Section 125 Administration
9000 Cameron Paikway
Oklahoma City OK 73114
P O Box 25510
Oklahoma City OK 7312°
To Employer at last known address
9.03 Annlicable Law. The provisions of this Agreement shall be construed,
administered, and enforced according to the laws of the State of Oklahoma.
9.04 Amendment. This Agreement may be amended by Recordkeeper by written
notice to Employer.
9.05 Titles. The title of the Articles and Paragraphs hereof are included for
convenience only and shall not be construed as a part of this Agreement or in any respect affecting
or modifying its provisions.
9.06 Severability. If any provision or provisions of this.Agreement shall be held
illegal or invalid for any'reason, said illegality or invalidity shall not affect the remaining provisions
of this Agreement, but shall be fully severable and the Agreement shall be construed and enforced
as if said illegal or invalid provisions had never been inserted herein.
9.07 Controlling Agreement. This Agreement supersedes and replaces any prior
agreement between the parties with respect to the subject matter contained herein.
15
DocuSign Envelope ID: 61ACO2EO-5BB14CCD-BO79-A8CEOFD56332
requirement, condition or obligation upon Recordkeeper, Employer or any Plan concerning the
subject matter hereof that is not imposed by this Article, then this Article will be automatically
amended to incorporate the applicable terms and conditions of that regulation or amendment such
that this Article contractually imposes those terms upon the party or parties to which they apply.
Any ambiguity in this Article shall be resolved in favor of a meaning that results in the parties
complying with HIPAA.
8.17 Effective Date. This Article shall be effective on the effective date of this
Agreement, except with respect to the applicable requirements of the HIPAA security standards for
the protection of Electronic PHI set forth at Subpart C of Part 164 of Title 45 of the Code of
Federal Regulations, which shall be effective on the later of the effective date of Agreement or April
20, 2005. The Employer or any Plan's engagement of Recordkeeper to perform any services during
which Recordkeeper may create or have access to PHI shall constitute Employer and that Plan's
acceptance of, and agreement to, all the terms and provisions of this Article.
8.18 ARRA Compliance. Recordkeeper acknowledges and agrees, as of the
applicable effective dates for such provisions, Recordkeeper shall comply with each provision of the
American Recovery and Reinvestment Act of 2009 ("ARRA") that extends HIPAA Privacy or
Security Rule requirements to Business Associates of Covered Entities. The term "Business
Associate" and "Covered Entity" shall have the meanings given such terms at 45 C.F.R. § 160.103.
8.19 Compliance with Breach Notification Rule. Recordkeeper shall report any
Breach to Employer and Plan as soon as possible, but in no event later than 30 days after
Recordkeeper becomes aware of any Breach. Recordkeeper shall, at the direction of the Plan,
cooperate and assist in investigating the Breach, performing a risk assessment, determining
whether the Breach is reportable under the Breach Notification Rule, and taking steps to
minimize any adverse consequences resulting from the Breach. Recordkeeper shall take
appropriate disciplinary action against any of its employees that were involved in the Breach.
Recordkeeper shall not report the Breach to any individual, the Secretary or the media and shall
keep the investigation strictly confidential. The Plan shall make the determination of whether
the Breach is a reportable Breach under the Breach Notification Rule and shall comply with
applicable reporting requirements.
SECTION DC
MISCELLANEOUS
9.01 Action by the Employer. Whenever under this Agreement the Employer is
permitted or required to do or perform any act or thing, it shall be done and performed by an officer
or a proper authority of the Employer.
9.02 Notices. All notices, advice, direction or reports required or permitted to be
given under this Agreement shall be in writing and shall be mailed postage prepaid or delivered by
hand and acknowledged by signed receipt, addressed as follows:
14
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-A8CEOFD56332
is maintained in a Designated Record Set in the possession or under the reasonable control of
Recordkeeper.
8.12 Accounting. Recordkeeper will maintain a record for each disclosure of
PHI, which is not excepted from disclosure accounting under HIPAA, including, without limitation,
45 C.F.R. 164.528, that Recordkeeper makes to any Person. That record shall include all
information that Employer would be required under HIPAA to respond to a request by a participant
in any Plan (or his or her personal representative) for an accounting of disclosures of PHI in
accordance with HIPAA, including, without limitation, the information required by 45 C.F.R.
164.528(b)(2).
8.13 Breach of Obligations. If Employer determines that Recordkeeper has
breached the provisions of this Article in any material respect and Recordkeeper has not remedied
or cannot remedy that breach within fifteen (15) days after its receipt of written notification thereof
from Employer, Employer may terminate the recordkeeping arrangement and this Agreement; if
termination is not feasible, report the breach to the Secretary.
8.14 Return of PHI. Upon termination of the recordkeeping arrangement or this
Agreement and as to the extent permitted by applicable law and :as consistent with its other
obligations and undertakings provided in this Article, Recordkeeper will, if feasible, return to
Employer or destroy all PHI that Recordkeeper still maintains in any form, including all copies of
any data or compilations derived from and allowing identification of any individual who is a subject
of the PHI. Recordkeeper will complete such return or destruction as promptly as possible.
Recordkeeper will identify the conditions that make the return or destruction of any PHI infeasible
and any PHI that Recordkeeper cannot feasibly return to Employer or destroy. Recordkeeper will
limit its further use or disclosure of that PHI to those purposes that make its return or destruction
infeasible, and extend the safeguards and protections of this Agreement to that PHI.
8.15 Compliance By Employer. As between Employer and Recordkeeper,
Employer shall be solely responsible for compliance with the applicable plan sponsor disclosure
rules of 45 C.F.R. 164.504(f) and other requirements of HIPAA applicable to Employer as the
sponsor and/or administrator of any Plan. As between a Plan and Recordkeeper, such Plan shall be
solely responsible for its compliance with the applicable obligations and requirements under HIPAA
applicable to that Plan as a covered entity. To the extent that Recordkeeper provides PHI (other
than "summary health information," within the meaning of 45 C.F.R. 164.504(a), or enrollment
information) to Employer in connection with the services performed under this Agreement or
otherwise, Employer will ensure compliance with the requirements of HIPAA including 45 C.F.R.
164.504(f) with respect to that PHI. To the extent that Employer is relying upon the "summary
health information" exception to the foregoing plan sponsor disclosure requirements, Employer will
ensure, consistent with the provisions of 45 C.F.R. 164.504(f)(ii), that the information in question
meets the requirements of that definition and that the information is sought for the purpose of
obtaining premium bids or for modifying, amending or terminating the group health plan or any
other legally permissible purpose.
8.16 Amendments to HIPAA. Upon the effective date of any final regulation or
amendment to HIPAA that conflicts with any term of this Article or which imposes any
13
DocuSign Envelope ID: 61ACO2E0-5B81-4CCD-Bo79-A8CEOFD56332
(d) Each party will obtain and maintain, at its own expense, its own operating system
necessary for timely, complete, accurate, and secure data transmission pursuant to this
Agreement. Each party will pay its own costs related to data transmission under this
Agreement, including, without limitation, charges for the party's own operating system
equipment, software and services, maintaining an electronic mailbox, connection time,
terminals, connections, telephones, internet service providers, modems, and applicable
minimum use charges, except as otherwise provided in this Agreement or any other
agreement between the parties. Each party will be responsible for its own expenses
incurred in connection with translating, formatting, and sending or receiving
communications over the electronic network to any electronic mailbox of the other
party, except as otherwise provided in this Agreement or any other agreement between
the parties.
(e) Each party will provide the other party with all information (including, without
limitation, access and security codes) reasonably necessary to allow access to the other
party's operating system in order to successfully complete data transmissions and
satisfy the transmission and security requirements provided in Agreement. Each party
shall test, and cooperate with the other party in testing, each party's operating system
to reasonably ensure the accuracy, timeliness, completeness, and confidentiality of
each data transmission made in connection with any Plan.
(f) Each party shall use its reasonable efforts in accordance with prudent business
practices to provide uninterrupted access to the operating system of the other party for
purposes of electronic transmissions concerning any Plan.
(g) The parties shall use their good faith efforts to incorporate herein such applicable
requirements of HIPAA that are hereafter adopted concerning the privacy, security,
standardization or encryption of electronic data transmissions involving any Plan.
8.10 Access. Upon Employer's reasonable written request, Recordkeeper will
make available to Employer or, at Employer's direction, to an individual participant in any Plan (or
the individual's personal representative) any PHI (in its possession or under its reasonable control)
concerning the individual in a Designated Record Set for his or her inspection and obtaining copies
for so long as the PHI is so maintained by Recordkeeper. The PHI shall be made available in the
format requested by the individual, unless the PHI is not readily producible in such format, in which
case it shall be produced in a readable hard copy format. Recordkeeper shall have the right to
charge the individual a reasonable cost -based fee, as permitted by 45 C.F.R. 164.524. Recordkeeper
does not assume any obligation to coordinate access to PHI maintained by other business associates
of Employer or any Plan. Recordkeeper shall make its internal policies, procedures, practices,
books and records relating to its safeguarding, use or disclosure of PHI available to the Secretary, in
a time and manner reasonably designated by the Secretary for purposes of determining Employer or
any Plan's compliance with HIPAA.
8.11 Amendment of PHI. Upon Employer's request, Recordkeeper will promptly
amend, or provide Employer with reasonable access to promptly amend, any portion of the PHI or
any record in a Designated Record Set in accordance with 45 C.F.R. 164.526 for as long as the PHI
12
DomSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-ABCEOFD56332
not permitted by this Article. Recordkeeper's obligation to protect the privacy of the PHI it created
or received for or from Employer will be continuous and survive the termination of Agreement.
Recordkeeper will report to the applicable Plan and Employer any Security Incident of which it
becomes aware.
8.08 Assignment. In each instance that Recordkeeper provides PHI to any agent,
subcontractor, assignee or delegatee and/or assigns or delegates (if such assignment or delegation is
permitted hereunder) any of its undertakings with respect to the services under this Agreement to
any other Person, then Recordkeeper shall obtain a binding written agreement from each such agent,
subcontractor, assignee and delegatee requiring that Person to comply with the provisions of this
Article with respect to the use, disclosure and safeguarding of PHI including, without limitation, the
implementation of reasonable and appropriate safeguards to protect Electronic PHI and the
reporting of Security Incidents involving such Person of which such Person becomes aware.
8.09 Standard Transactions. If Recordkeeper conducts in whole or in part any
Standard Transaction for or on behalf of Employer or any Plan, Recordkeeper will comply, and
Recordkeeper will require any of its subcontractors or agents involved with the conduct of such
Standard Transaction to comply, with each applicable requirement of HIPAA as respects that
Standard Transaction, as follows:
(a) When either party provides, transmits or exchanges data and information electronically
to the other party with respect to any Plan, that party shall transfer the data and
information in the code sets; data elements, and formats reasonably specified by
Recordkeeper. To the extent required by HIPAA, Recordkeeper shall only specify and
use the code sets, data elements and formats that comply with HIPAA. All electronic
transmissions between the parties shall be to the address provided by the receiving
party to the transmitting party. Plan Administrator authorizes Recordkeeper to submit
such data and information to Plan Administrator in the specified electronic format after
completion of successful testing thereof. If Plan Administrator is unable or unwilling
to transfer data in the specified legal electronic format proposed by Recordkeeper, then
Recordkeeper shall be under no obligation to receive or transmit data in any other
format.
(b) Recordkeeper shall use its reasonable efforts to provide Plan Administrator with at
least sixty (60) days prior written notice of any proposed change by Recordkeeper to
any code sets, data elements or segments, and formats then being used by the parties
for purposes of the electronic exchange of data and information concerning any Plan_
(c) Each party will take reasonable measures to ensure that its data transmissions
concerning the Policy or containing any PHI are timely, accurate, complete, and
secure, and will take reasonable precautions to prevent unauthorized access to the other
party's data transmission or operating system. If either party receives data from the
other party that was not intended for it, the receiving party will immediately notify the
sender to arrange for, at the sender's sole election, the return, re -transmission or
destruction of that data.
11
DocuSign Envelope ID: 61ACO2E05BB1-4CCD-B079-A8CEOFD56332
(n) "Security Rule" means the regulations set forth at 45 C.F.R. Part 164, subpart
C, as hereafter amended, which implement the security requirements set forth
in the Administrative Simplification provisions of HIPAA.
8.03 Use and Disclosure. Recordkeeper shall neither use nor disclose PHI except
as provided in this Article or permitted under applicable law. Except as otherwise specified in this
Article, Recordkeeper may make any and all uses of PHI that are reasonably necessary to perform
its undertakings with respect to the services under this Agreement. Neither Employer nor any Plan
shall request Recordkeeper to use or disclose PHI in any manner that would violate HIPAA.
&.04 Further Limitations or Restrictions. Recordkeeper shall also comply with all
further limitations and restrictions on the privacy or any use or disclosure of PHI agreed by
Employer or any Plan in accordance with 45 C.F.R. 164.522 to the extent they may affect
Recordkeeper's use or disclosure of PHI provided that Recordkeeper has received prior written
notification of those limitations and restrictions from Employer or the applicable Plan. Neither
Employer nor any Plan will commit Recordkeeper to any such limitations or restrictions, including,
but not limited to, restrictions on the use or disclosure of PHI as provided for or limitations in 45
C.F.R. 164.522, unless those limitations or restrictions are required by applicable Law or, in all
other instances, without first obtaining Recordkeeper's written approval, which approval will not be
unreasonably withheld or delayed. Employer shall immediately notify Recordkeeper of any
changes in, or revocation of, any authorization or consent of any participant of or beneficiary under
any Plan with respect to the use or disclosure of PHI, to the extent same may affect Recordkeeper.
8.05 Use for Management and Administration. Recordkeeper may use PHI as
necessary for the proper management and administration of Recordkeeper or to carry out the legal
responsibilities of Recordkeeper. Recordkeeper may disclose PHI as necessary for the proper
management and administration of Recordkeeper or to carry out the legal responsibilities of
Recordkeeper if (a) the disclosure is required by Law or (b) prior to the disclosure, Recordkeeper
obtains a binding written agreement from each Person to whom Recordkeeper will disclose the PHI
which provides that such Person will (i) hold the PHI in confidence and use or further disclose the
PHI only as required by law or for the lawful purpose for which Recordkeeper disclosed it to the
Person, and (ii) notify Recordkeeper of each instance of which the Person becomes aware in which
the confidentiality of the PHI is breached and/or a Security Incident occurs.
8.06 Other Services. Recordkeeper may use PHI, as permitted by HIPAA, to
provide Data Aggregation services relating to the health care operations of Employer or any Plan as
permitted under HIPAA. Recordkeeper may use PHI to report a violation of Law to the Secretary in
accordance with HIPAA.
8.07 Safe ug ards. Recordkeeper will use appropriate, commercially reasonable
safeguards to ensure the confidentiality of PHI permitted under this Agreement. Recordkeeper will
implement administrative, physical and technical safeguards that reasonably and appropriately
protect the confidentiality, integrity and availability of the Electronic PHI that Recordkeeper creates,
receives, maintains or transmits on behalf of Employer or any Plan. Recordkeeper shall promptly
notify Employer in writing after Recordkeeper has actual knowledge of any use or disclosure of PHI
10
DomSign Envelope ID: 61ACO2EO-5B814CCD-BO79-A8CEOFD56332
(c) "Breach Notification Rule" means the regulations set forth at 45 C.F.R. Part
164, Subpart D, as hereafter amended, which implement the Breach
notification requirements set forth in HIPAA.
(d) "Data Aggregation," "Designated Record Set," "Secretary" and "Standard
Transaction" shall each have the meaning provided for that term in HIPAA.
(e) "Electronic PHI" means any PHI that comes within or satisfies the
definition of "protected health information" at 45 C.F.R. 160.103(1)(i) and
(ii), and is disclosed to, or created, obtained, maintained or received by,
Business Associate in connection with, or in any manner related to,
Recordkeeper's performance of services pursuant to this Agreement, or
otherwise for or on behalf of Employer or any Plan.
(f) "HIPAA" means the Health Insurance Portability and Accountability Act of
1996, and all rules and regulations promulgated thereunder, as either or both
are amended and revised from time to time.
(g) "Law" means any and all statutes, legislation, rules, regulations, codes, laws,
orders, decrees, decisions, and ordinances enacted, issued or promulgated by
any federal, state or local governmental authority, agency, body, commission,
board, court or legislature.
(h) "Person" means any natural person, corporation, limited liability company,
partnership, trust, or other legal entity or organization.
(i) "Plan" means all individual or group health plans, cafeteria plans, and similar
employee benefit plans sponsored by the Employer that provide, reimburse
or pay the cost of medical care or similar services and to which Recordkeeper
now or hereafter provides services.
(j) "Privacy Rule" means the regulations set forth at 45 C.F.R. Part 160 and Part
164, subparts A and E, as hereafter amended, which implement the privacy
requirements set forth in the Administrative Simplification provisions of
HIPAA.
(k) "Protected Health Information" or "PHP' means any and all information
constituting "protected health information," as that term is defined in HIPAA,
that is disclosed to, or created, obtained, maintained or received by,
Recordkeeper in connection with this Agreement.
(1) "Secretary" means the Secretary of the Department of Health and Human
Services, or his or her duly designated designee.
(m) "Security Incident" has the same meaning as the term "security incident" in
45 C.F.R. 164.304.
DocuSign Envelope ID: 61ACO2E0-5881-4CCD-B079-ABCEOFD56332
FEES FOR SERVICES
6.01 Fees. In consideration of the Recordkeeper performing the services
described herein for the Employer, -the Employer will pay a fee of $0 per month for participation in
one or both flexible spending accounts for each Participant in the Plan during such month. Payment
of all required fees will be made each month during the term of this Agreement following the month
in which such services are performed. If the debit card is allowed by the employer in the Medical
Expense Reimbursement Account, there will be an additional fee of $0.00 per month per participant
electing the debit card.
ARTICLE VII
EXCEPTION TO ELECTION CHANGES
7.01 Exception to Election Changes. If the employer applies for the Medical
Expense Reimbursement Policy, Participants may not make election changes under said Policy
except in the case of termination of employment unless otherwise agreed to in writing by Employer
and Recordkeeper, or otherwise stipulated by amendment to this Agreement. This stipulation does
not affect election changes under a dependent care account.
ARTICLE VIII
COMPLIANCE WITH HIPAA REQUIREMENTS AS A
BUSINESS ASSOCIATE OF THE EMPLOYER
8.01 Recordkeeper as Business Associate. In connection with Recordkeeper's
performance of services pursuant to this Agreement, Recordkeeper may create, receive or have
access to Protected Health Information ("PHI"). Since HIPAA regulates the use and disclosure of
Protected Health Information, Employer and Recordkeeper want to address and ensure in this
Article VIII their respective compliance with HIPAA's applicable business associate provisions and
requirements in connection with the services performed under this Agreement. Wherever the term
"Employer" is used in this Article VIII, it shall mean "Plan Administrator" and "Employer", as
those terms are defined in Paragraphs numbered 1.02 and 1.05 of this Agreement.
8.02 Definitions. When used in this Article VIII, the following terms shall have
the meanings specified adjacent to them:
(a) "ARRA" means the American Recovery and Reinvestment Act of 2009.
(b) "Breach" means the acquisition, access, use, or disclosure of PHI in a manner
not permitted under 45 C.F.R., Part 164, Part E, which compromises the
security or privacy of the PHI.
DocuSign Envelope ID: 61ACO2EO-SB81-4CCD-B079-ABCEOF056332
4.03 Status of Recordkeeper. The duties of the Recordkeeper hereunder shall be
performed in its capacity as the agent of the Employer for the purposes of administering the
Account. Due solely to the fact that the Recordkeeper is administering the Account for and on
behalf of the Employer, this fact in no manner whatsoever should be considered as a guarantee to
either the Employer or the Participants that all funds which need to be made available for the
payment of benefits under the plan are in the Account. The Recordkeeper does not warrant
payment of any amounts otherwise due to be paid under the Plan except with respect to those
amounts which the Employer has delivered to the Recordkeeper for payment of benefits as provided
under the Plan and the Policy. The maximum amount of reimbursement elected by a Participant
under the medical expense reimbursement account is available at all times during the period of
coverage, as required in Internal Revenue Code Section 125-2 (Q/A-7).
4.04 Account Not to Earn Interest. The Employer has specifically requested of
and the Recordkeeper has agreed that the contributions will not be maintained in interest bearing
accounts or investments; accordingly, the contributions held in the Account will be held only in
non-interest bearing accounts and investments.
ARTICLE V
TERM OF AGREEMENT
5.01 Termination. Unless earlier terminated pursuant to the provisions of 5.02,
this Agreement shall remain in effect for one. Plan year following the effective date. At the end of
one Plan year, this Agreement will continue in full force and effect until terminated. Further, this
Agreement will automatically terminate upon termination of the Plan if the Employer certifies to the
Recordkeeper that no further benefits are to be paid to Participants. In the event of termination of
this Agreement, any and all amounts held in the Account will be returned to the Employer in
accordance with the terms of the Policy, and the Employer will then be solely responsible for the
performance of the duties otherwise required to be performed by the Recordkeeper hereunder or
under the Plan.
5.02 Termination Upon Written Notice. This Agreement may be terminated with
or without cause by either party upon no less than ninety (90) days written notice to the other party.
In addition, this Agreement may be terminated immediately by written notice specifying a
termination date by any party should any of the following events occur: (a) a party fails to comply
with this Agreement, or (b) an act of dishonesty or fraud is committed by any party, or (c) any other
reason deemed by American Fidelity to be a legitimate business reason. If American Fidelity
insures the uniform coverage risk, the risk policy will also terminate and all risk reverts back to the
Employer. This would include instances where the Employer consolidates with another entity
during the.plan year and does not allow the flexible spending accounts to run the full length of the
plan year. If American Fidelity's recordkeeping services are terminated, or if Employer terminates
either the Section 125 Plan or the flexible spending accounts, a runoff period.will only be honored if
Employer immediately provides funds to pay any outstanding claims.
ARTICLE VI
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DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-8079-A8CEOFD56332
(a) Deliver to the Recordkeeper all contributions (both by Participants
and the Employer) received by the Employer under the Plan;
(b) Provide any and all cost, claims, contribution and participation
information in the format and frequency that the Recordkeeper determines is
necessary to perform its recordkeeping duties;
(c) Interpret the Plan and provide written directions to the Recordkeeper
concerning (i) the proper interpretation of the terms of the Plan or any expense
reimbursement provision thereunder and (ii) payment of benefits; and
(d) Complete and file an annual 5500 report, if necessary.
3.02 Indemnification of Recordkeeper. Notwithstanding any other provision of
this Agreement or the Policy, the Employer agrees to indemnify and hold the Recordkeeper
harmless from and against any liability, damage, expense (including attorney fees) or cost that it
may incur in serving as Recordkeeper under this Agreement, including but not limited to any claim
arising from damage experienced by the Employer, the Plan Administrator or a Participant in
connection with the adoption or maintenance or administration of the Plan, unless arising from the
Recordkeeper's own negligent or willful breach of the provisions of this Agreement.
ARTICLE IV
ESTABLISHMENT OF ACCOUNTS
4.01 Account to Hold Contributions. Pursuant to the Plan and Policy, the
Employer is required to collect contributions. The Employer does not desire to retain physical
custody of such contributions and has requested that the Recordkeeper hold and administer such
contributions as agent of the Employer, for the benefit of the Participants in the Plan. Accordingly,
the Employer hereby requests the Recordkeeper to establish the Account for and on behalf of the
Employer and the Participants in the Plan. In accordance with the terms and provisions of the Plan,
the Employer shall collect and remit to the Recordkeeper all amounts collected by it under the Plan.
All amounts received by the Recordkeeper will be credited to the Account which has been
established in the name of the Employer by the Recordkeeper. The Employer will deliver all such
contributions as soon as reasonably possible following receipt by the Employer in accordance with
the terms of the Plan in order that such amounts may be available to pay benefits. No credits for
adjustments on previous billings are allowed; any necessary adjustment will be resolved separately
from the monthly contributions upon written agreement between Employer and Recordkeeper.
4.02 Account to Remain Property of the Employer. All contributions to the
Account (and the Account itself) shall be deemed to be and remain the exclusive property of the
Employer until payment of benefits has occurred. The Recordkeeper shall have no proprietary
interest in or title to any amounts held in the Account, its duties hereunder being solely to administer
the Account for and on behalf of the Employer and the Participants in accordance with the terms
and provisions of the Plan and this Agreement. Further, the Account shall in no manner whatsoever
be considered as a trust or other similar entity.
6
DocuSign Envelope ID: 61ACO2EO-5B814CCD-B079-ASCEOFD56332
Provided, the foregoing notwithstanding, the Recordkeeper shall have no power to add to or subtract
from or to modify any of the provisions of the Plan, or to change or add to any benefit provided in
the Plan.
2.03 Claim Procedure. The Recordkeeper shall pay or deny claims for
reimbursement of medical expenses and dependent care expenses in accordance with the terms of
the Plan, where applicable. The Recordkeeper shall refer to the Plan Administrator any request for
review of a denial of benefits pursuant to the provisions of the claim procedures set forth in the Plan.
In accordance with the terms of the Plan, the Plan Administrator (and not the Recordkeeper) shall
have the final and absolute authority to determine the validity of claims and whether claims should
be paid or denied. Claims will be retained by the Recordkeeper for a period of six years plus the
current year, after which they will be purged. No reimbursement will be made to the participant
under the dependent day care and/or medical expense reimbursement account until the first
contribution is received from the employer and posted to the participant's account.
2.04 Debit Card procedure. The Recordkeeper shall pay or deny claims in the
event that the Employer elects to allow the use of debit cards ("Debit Cards') for reimbursement of
Eligible Medical Expenses under the Medical Expense Reimbursement Plan, in accordance with
Section 8.05 of the Plan.
. 2.05 Duties of the Recordkeener. The Recordkeeper shall provide the following
recordkeeping services to the Plan Administrator:
(a) At the direction of the Plan Administrator, make expense
reimbursement benefit payments from the Account to or for the benefit of
Participants entitled to such benefits under the Plan;
(b) Provide to the Plan Administrator by January 15 of each year, if
requested, annual statements of monies from Participants received and posted who
participated in the Dependent Care Expense Plan as set forth in. the Plan during the
preceding calendar year;
(d) Prepare a monthly reconciliation of allocations and expense
reimbursement benefit payments made from the Account, if requested;
(e) Return unused reimbursement amounts which may be due to the
Employer under the terms of the Plan and the Policy on a timely basis following the
runoff period after the end of the Plan year.
ARTICLE III
RESPONSIBILITIES OF EMPLOYER AS PLAN ADMINISTRATOR
3.01 Responsibilities Concerning Recordkeeper. The Employer shall take the
following actions in connection with its delegation of recordkeeping duties to the Recordkeeper:
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-B079-A8CEOFD56332
Employer has either (a) applied for coverage under the Policy and the Trust Subscription
Agreement, as required by the Recordkeeper, has been submitted to the Recordkeeper (See Article
VII for limitations of election), (b) not applied for the Policy and will assume the uniform coverage
risk for the medical expense reimbursement and has signed and submitted a Flexible Spending
Account Agreement, or (c) has not submitted any signed Agreement because the Plan either does
not include medical expense reimbursement and only includes dependent daycare reimbursement.
1.10 "Recordkeeper" shall mean American Fidelity Assurance Company as duly
appointed by the Employer pursuant to the terms of the Plan.
ARTICLE II
POWERS AND DUTIES OF THE RECORDKEEPER
2.01 Recordkeeper. The Recordkeeper shall provide the recordkeeping and other
ministerial services as the Recordkeeper appointed by the Employer as such under the terms of the
Plan. The duties of the Recordkeeper shall be only as provided under this Agreement, the Policy or
as otherwise agreed to, in writing, by the Recordkeeper.
2.02 Powers of the Recordkeeper. The Recordkeeper shall have such powers as
are necessary for the proper payment of claims for medical expense reimbursement and dependent
care expense reimbursement benefits under the Plan, including, but not limited to, the following:
(a) To prescribe procedures to be followed by Participants in filing
applications for benefits under the Plan and for furnishing evidence necessary to
establish their rights to benefits under the Plan;
(b) To apply the provisions of the Plan (including the provision allowing
no election changes by participants for the medical expense reimbursement account
during the plan year unless otherwise agreed to in writing by the Employer and the
Recordkeeper) as interpreted by the Plan Administrator in determining the rights of
any Participant who applies for benefits under the Plan and to notify any such
Participant of any such determination;
(c) To obtain from the Employer, Participants and others information as
shall be necessary for proper accounting of expense reimbursement benefit
payments made pursuant to the terms of the Plan, the Policy, and the directions of
the Plan Administrator; and
(d) To receive from and hold on behalf of the Plan Administrator those
sums of monies in the Account as determined by the Plan Administrator which (i)
represent contributions made under the Plan (by Participants or the Employer) and
(ii) will be held and administered in accordance with the Plan, the Policy and this
Agreement to pay benefits (or to be returned to the Employer).
rd
DocuSign Envelope ID: 61ACO2EO-5861-4CCD-8079-ASCEOFD56332
This RECORDKEEPING AGREEMENT to be effective as of July 1, 2018 is made
by and between KODIAK ISLAND BOROUGH, an entity duly organized and existing under the
laws of the State of and having its principal place of business in Kodiak, AK (hereinafter referred
to as the "Employer") and American Fidelity Assurance Company, a corporation (the
"Recordkeeper"), for the Employer's Section 125 Flexible Benefit Plan (the "Plan").
ARTICLE I
DEFINITIONS
Capitalized terms used herein and not otherwise defined herein shall have the same
meaning as set forth in the Plan. The masculine gender shall include both sexes; the singular shall
include plural and the plural the singular, unless the context otherwise requires.
1.01 "Account" shall mean the account established by the Recordkeeper on behalf
of the Employer from which benefits are to be paid in accordance with the terms of the Plan and this
Agreement.
1.02 "Plan Administrator" shall mean the Employer or its appointed delegate,
which includes the person, persons or group appointed to act as Administrator under the Plan.
1.03 "Agreement" shall mean this Recordkeeping Agreement, as set forth herein,
with any and all further supplements and amendments thereto, which supplements and amendments
shall be effective as to Employer upon written notice to Employer.
1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and successor tax laws.
1.05 "Employer" shall mean the Plan Sponsor/Employer and its successors.
1.06 "Participant" shall mean an Employee of an Employer who participates in
the Plan under the participation provisions thereof. For purposes of the medical expense
reimbursement account, "Participant" does not include Employees who participated during the
current plan year, left the plan by discontinuing contributions to the plan, and who then are rehired.
1.07 "New Participant" shall mean an Employee newly hired during the plan year
and who has not previously participated in the flexible spending accounts during the current plan
year.
1.08 "Plan" shall mean the Employer's Section 125 Flexible Benefit Plan as
hereafter amended from time to time.
1.09 "Policy" shall mean the medical expense reimbursement insurance risk
coverage contract issued to the Employer by American Fidelity Assurance Company. The
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-8079-A8CEOFD56332
ARTICLE VII EXCEPTION TO ELECTION CHANGES
7.01 Exception to Election Changes
ARTICLE VIII COMPLIANCE WITH HIPAA REQUIREMENTS AS A
BUSINESS ASSOCIATE OF THE EMPLOYER
8.01
Recordkeeper as Business Associate
8.02
Definitions
8.03
Use and Disclosure
8.04
Further Limitations or Restrictions
8.05
Use for Management and Administration
8.06
Other Services
8.07
Safeguards
8.08
Assignment
8.09
Standard Transactions
8.10
Available Copies
8.11
Amendment of PHI
8.12
Accounting
8.13
Breach of Obligations
8.14
Return of PHI
8.15
Compliance by Employer
8.16
Amendments to HIPAA
8.17
Effective Date
8.18
ARRA Compliance
8.19
Compliance with Breach Notification Rule
ARTICLE IX MISCELLANEOUS
9.01
Action by the Employer
9.02
Notices
9.03
Applicable Law
9.04
Amendment
9.05
Titles
9.06
Severability
9.07
Controlling Agreement
3
DocuSign Envelope ID: 61ACO2EO-50814CCD-BO79-ASCEOFD56332
TABLE OF CONTENTS
1716WRTUVOM
ARTICLE I DEFINITIONS
1.01
Account
1.02
Plan Administrator
1.03
Agreement
1.04
Code
1.05
Employer
1.06
Participant
1.07
New Participant
1.08
Plan
1.09
Policy
1.10
Recordkeeper
ARTICLE II POWERS AND DUTIES OF RECORDKEEPER
2.01
Recordkeeper
2.02
Powers of the Recordkceper
2.03
Claim Procedure
2.04
Debit Card Procedure
2.05
Duties of the Recordkeeper
ARTICLE III RESPONSIBILITIES OF EMPLOYER AS PLAN ADMINISTRATOR
3.01 Responsibilities Concerning Recordkeeper
3.02 Indemnification of Recordkeeper
ARTICLE IV ESTABLISHMENT OF ACCOUNTS
4.01
Account to Hold Contributions
4.02
Account to Remain Property of Employer
4.03
Status of Recordkeeper
4.04
Account Not to Earn Interest
ARTICLE V TERM OF AGREEMENT
5.01 Termination
5.02 Termination Upon Written Notice
ARTICLE VI FEES FOR SERVICES
6.01 Fees
1
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-BO79-A8CEOFD56332
KODIAK ISLAND BOROUGH
EMPLOYER
FLEXIBLE SPENDING ACCOUNT
RECORDKEEPING AGREEMENT
Rev. 12/09
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-B079-ABCEOFD56332
13.08 NONDISCRIMINATION: In accordance with Code Section 125(b)(1), (2), and (3), this Plan is
intended not to discriminate in favor of Highly Compensated Participants (as defined in Code Section
125(e)(1)) as to contributions and benefits nor to provide more than 25% of all qualified benefits to Key
Employees.,. If, in the judgment of the Administrator, more than 25% of the total nontaxable benefits are
provided to Key Employees, or the Plan discriminates in any other manner (or is at risk of possible
discrimination), then, notwithstanding any other provision contained herein to the contrary, and, in
accordance with the applicable provisions of the Code, the Administrator shall, after written notification
to affected Participants, reduce or adjust such contributions and benefits under the Plan as shall be
necessary to insure that, in the judgment of the Administrator, the Plan shall not be discriminatory.
13.09 ERISA. The Plan shall be construed, enforced, and administered and the validity determined in
accordance with the applicable provisions of the Employee Retirement Income Security Act of 1974 (as
amended), the Internal Revenue Code of 1986 (as amended), and the laws of the State indicated in the
Adoption Agreement. Notwithstanding anything to the contrary herein, the provisions of ERISA will
not apply to this Plan if the Plan is exempt from coverage under ERISA. Should any provisions be
determined to be void, invalid, or unenforceable by any court of competent jurisdiction, the Plan will
continue to operate, and for purposes of the jurisdiction of the court only will be deemed not to include
the provision determined to be void.
PD 0217
33
DocuSign Envelope ID: 61ACO2EO-5881-0CCD-BO79-ABCEOFD56332
For purposes of this Section, "PHI" is "Protected Health Information" as defined in 45 CFR Section
160.103, which is means individually identifiable health information, except as provided in paragraph
(2) of the definition of "Protected Health Information" in 45 CFR Section 160.103, that is transmitted by
electronic media; maintained in electronic media; or transmitted or maintained in any other form or
medium by a covered entity, as defined in 45 CFR Section 164.104.
SECTION XIII
MISCELLANEOUS PROVISIONS
13.01 INABILITY TO LOCATE PAYEE: If the Plan Administrator is unable to make payment to any
Participant or other person to whom a payment is due under the Plan because it cannot ascertain the
identity or whereabouts of such Participant or other person after reasonable efforts have been made to
identify or locate such person, then such payment and all subsequent payments otherwise due to such
Participant or other person shall be forfeited following a reasonable time after the date any such payment
first became due.
13.02 FORMS AND PROOFS: Each Participant or Participant's Beneficiary eligible to receive any benefit
hereunder shall complete such forms and furnish such proofs, receipts, and releases as shall be required
by the Administrator.
13.03 NO GUARANTEE OF TAX CONSEQUENCES: Neither the Administrator nor the Company makes
any commitment or guarantee that any amounts paid to or for the benefit of a Participant or a Dependent
under the Plan will be excludable from the Participant's or Dependent's gross income for federal or state
income tax purposes, or that any other federal or state tax treatment will apply to or be available to any
Participant or Dependent.
13.04 PLAN NOT CONTRACT OF EMPLOYMENT: The Plan will not be deemed to constitute a contract of
employment between the Employer and any Participant nor will the Plan be considered an inducement
for the employment of any Participant or employee. Nothing contained in the Plan will be deemed to
give any Participant or employee the right to be retained in the service of the Employer nor to interfere
with the right of the Employer to discharge any Participant or employee at any time regardless of the
effect such discharge may have upon that individual as a Participant in the Plan.
13.05 NON -ASSIGNABILITY: No benefit under the Plan shall be liable for any debt, liability, contract,
engagement or tort of any Participant or his Beneficiary, nor be subject to charge, anticipation, sale,
assignment, transfer, encumbrance, pledge, attachment, garnishment, execution or other voluntary or
involuntary alienation or other legal or equitable process, nor transferability by operation of law.
13.06 SEVERABILITY: If any provision of the Plan will be held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions hereof will continue to be fully effective.
13.07 CONSTRUCTION:
(a) Words used herein in the masculine or feminine gender shall be construed as the feminine or
masculine gender, respectively where appropriate.
(b) Words used herein in the singular or plural shall be construed as the plural or singular, respectively,
where appropriate.
32
DocuSign Envelope ID: 61ACO2EO-5BB1-4CCD-B079-ABCEOFD56332
5. A statement of the Participant's right to bring suit under ERISA § 502(a).
12.11 PAYMENT TO REPRESENTATIVE: In the event that a guardian, conservator or other legal
representative has been duly appointed for a Participant entitled to any payment under the Plan, any such
payment due may be made to the legal representative making claim therefor, and such payment so made
shall be in complete discharge of the liabilities of the Plan therefor and the obligations of the
Administrator and the Employer.
12.12 PROTECTED HEALTH INFORMATION. The provisions of this Section will apply only to those
portions of the Plan that are considered a group health plan for purposes of 45 CFR Parts 160 and 164.
The Plan may disclose PHI to employees of the Employer, or to other persons, only to the extent such
disclosure is required or permitted pursuant to 45 CFR Parts 160 and 164. The Plan has implemented
administrative, physical, and technical safeguards to reasonably and appropriately protect, and restrict
access to and use of, electronic PHI, in accordance with Subpart C of 45 CFR Part 164. The applicable
claims procedures under the Plan shall be used to resolve any issues of non-compliance by such
individuals. The Employer will:
• not use or disclose PHI other than as permitted or required by the plan documents and permitted or
required by law;
• reasonably and appropriately safeguard electronic PHI created, received, maintained, or transmitted
to or by it on behalf of the Plan, in accordance with Subpart C of 45 CFR Part 164;
• implement administrative, physical, and technical safeguards that reasonably and.appropriately
protect the confidentiality, integrity, and availability of the electronic PHI that it creates, receives,
maintains, or transmits on behalf of the Plan;
• ensure that any agents including a subcontractors to whom it provides PHI received from the Plan
agree to the same restrictions and conditions that apply to the Employer with respect to such
information;
• not use or disclose PHI for employment-related actions and decisions or in connection with any
other employee benefit plan of the Employer;
• report to the Plan any use or disclosure of the information that is inconsistent with the permitted uses
or disclosures provided for of which it becomes aware;
• make available PHI in accordance with 45 CFR Section 164.524;
• make available PHI for amendment and incorporate any amendments to PHI in accordance with 45
CFR Section 164.526;
• make available the information required to provide an accounting of disclosures in accordance with
45 CFR Section 164.528;
• make its internal practices, books, and records relating to the use and disclosure of PHI received
from the Plan available to the Secretary of Health and Human Services or his designee upon request
for purposes of determining compliance with 45 CFR Section 164.504(f);
• if feasible, return or destroy all PHI received from the Plan that the Employer still maintains in any
form and retain no copies of such information when no longer needed for the purposes for which the
disclosure was made, except that, if such return or destruction is not feasible, limit further uses and
disclosures to those purposes that make the return or destruction of the information infeasible; and,
• ensure that the adequate separation required in paragraph (D(2)(iii) of 45 CFR Section 164.504 is
established.
31
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-807,9-A8CEOFD56332
2. reference to the specific Plan provision on which the denial is issued;
3. a description of any additional material or information necessary for the Participant to
complete his claim and an explanation of why such material or information is necessary,
and
4. appropriate information as to the steps to be taken if the Participant wishes to appeal the
Administrator's determination, including the participant's right to submit written
comments and have them considered, his right to review (on request and at no charge)
relevant documents and other information, and his right to file suit under ERISA with
respect to any adverse determination after appeal of his claim.
(b) Appealing Denied Claims: If the Participant's claim is denied in whole or in part, he may appeal to
the Administrator for a review of the denied claim. The appeal must be made in writing within 180
days of the Administrator's initial notice of adverse benefit determination, or else the participant will
lose the right to appeal the denial. If the Participant does not appeal on time, he will also lose his
right to file suit in court, as he will have failed to exhaust his internal administrative appeal rights,
which is generally a prerequisite to bringing suit.
A Participant's written appeal should state the reasons that he feels his claim should not have
been denied. It should include any additional facts and/or documents that the Participant feels
support his claim. The Participant may also ask additional questions and make written
comments, and may'review (on request and at no charge) documents and other information
relevant to his appeal. The Administrator will review all written comment the Participant
submits with his appeal.
(c) Review of Appeal: The Administrator will review and decide the Participant's appeal within a
reasonable time not longer than 60 days after it is submitted and will notify the Participant of its
decision in writing. The individual who decides the appeal will not be the same individual who
decided the initial claim denial and will not be that individual's subordinate. The Administrator
may secure independent medical or other advice and require such other evidence as it deems
necessary to decide the appeal, except that any medical expert consulted in connection with the
appeal will be different from any expert consulted in connection with the initial claim. (The identity
of a medical expert consulted in connection with the Participant's appeal will be provided.) If the
decision on appeal affirms the initial denial of the Participant's claim, the Participant will be
furnished with a notice of adverse benefit determination on review setting forth:
1. The specific reason(s) for the denial,
2. The specific Plan provision(s) on which the decision is based,
3. A statement of the Participant's right to review (on request and at no charge) relevant
documents and other information,
4. If the Administrator relied on an "internal rule, guideline, protocol, or other similar
criterion" in making the decision, a description of the specific rule, guideline, protocol, or
other similar criterion or a statement that such a rule, guideline, protocol, or other similar
criterion was relied on and that a copy of such rule, guideline, protocol, or other criterion
will be provided free of charge to the Participant upon request," and
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DocuSign Envelope ID: 61ACO2EO-5981-4CCD-B079-ABCEOFD56332
circumstances requiring an extension and the date by which a final decision will be reached (which
date shall not be later than one hundred and eighty (180) days after the date on which the claim was
filed.) A claimant• shall be given a written notice in which the claimant shall be advised as to
whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part,
the claimant shall be given written notice which shall contain (a) the specific reasons for the denial,
(b) references to pertinent plan provisions upon which the denial is based, (c) a description of any
additional material or information necessary to perfect the claim and an explanation of why such
material or information is necessary, and (d) the claimant's rights to seek review of the denial.
(b) Review of Claim Denial. If a claim is denied, in whole or in part, the claimant shall have the right to
request that the Administrator review the denial, provided that the claimant files a written request for
review with the Administrator within sixty (60) days after the date on which the claimant received
written notification.of the denial. A claimant (or his duly authorized representative) may review
pertinent documents and submit issues and comments in writing to the Administrator. Within sixty
(60) days after a request is received, the review shall be made and the claimant shall be advised in
writing of the decision on review, unless special circumstances require an extension of time for
processing the review, in which case the claimant shall be given a written notification within such
initial sixty (60) day period specifying the reasons for the extension and when such review shall be
completed (provided that such review shall be completed within one hundred and twenty (120) days
after the date on which the request for review was filed.) The decision on review shall be forwarded
to the claimant in writing and shall include specific reasons for the decision and references to plan
provisions upon which the decision is based. A decision on review shall be final and binding on all
persons.
(c) Exhaustion of Remedies. If a claimant fails to file a request for review in accordance with the
procedures herein outlined, such claimant shall have no rights to review and shall have no right to
bring action in any court and the denial of the claim shall become final and binding on all persons
for all purposes.
12.10 SPECIAL CLAIMS REVIEW PROCEDURE: The provisions of this Section 12.10 shall be applicable
to claims under the Group Medical Reimbursement Plan and the Group Medical Insurance Plan,
effective on the first day of the first Plan Year beginning on or after July 1, 2002, but in no event later
than January 1, 2003, provided such plans are subject to ERISA.
(a) Benefit Denials: The Administrator is responsible for evaluating all claims for reimbursement under
the Medical Expense Reimbursement Plan and the Group Medical Insurance Plan.
The Administrator will decide a Participant's claim within, a reasonable time not longer than 30 days
after it is received. This time period may be extended for an additional 15 days for matters beyond
the control of the Administrator, including in cases where a claim is incomplete. The Participant
will receive written notice of any.extension, including the reasons for the extension and information
on the date by which a decision by the Administrator is expected to be made. The Participant will be
given 45 days in which to complete an incomplete claim. The Administrator may secure
independent medical or other advice and require such other evidence as it deems necessary to decide
the claim.
If the Administrator denies the claim, in whole or in part, the Participant will be furnished with a
written notice of adverse benefit determination setting forth:
the specific reason or reasons for the denial;
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DocuSign Envelope ID: 61ACO2EO-5881-4CCD-8079-A8CEOF056332
12.04 COMPENSATION AND EXPENSES OF ADMINISTRATOR: The Administrator shall serve without
compensation for services as such. All expenses of the Administrator shall be paid by the Employer.
Such expenses shall include any expense incident to the functioning of the Plan, including, but not
limited to, attorneys' fees, accounting and clerical charges, actuary fees and other costs of administering
the Plan.
12.05 LIABILITY OF ADMINISTRATOR: Except as prohibited by law, the Administrator shall not be liable
personally for any loss or damage or depreciation which may result in connection with the exercise of
duties or of discretion hereunder or upon any other act or omission hereunder except when due to willful
misconduct. In the event the Administrator is not covered by fiduciary liability insurance or similar
insurance arrangements, the Employer shall indemnify and hold harmless the Administrator from any
and all claims, losses, damages, expenses (including reasonable counsel fees approved by the
Administrator) and liability (including any reasonable amounts paid in settlement with the Employer's
approval) arising from any act or omission of the Administrator, except when the same is determined to
be due to the willful misconduct of the Administrator by a court of competent jurisdiction.
12.06 DELEGATIONS OF RESPONSIBILITY: The Administrator shall have the authority to delegate, from
time to time, all or any part of its responsibilities under the Plan to such person or persons as it may
deem advisable and in the same manner to revoke any such delegation of responsibilities which shall
have the same force and effect for all purposes hereunder as if such action had been taken by the
Administrator. The Administrator shall not be liable for any acts or omissions of any such delegate.
The delegate shall report periodically to the Administrator concerning the discharge of the delegated
responsibilities.
12.07 RIGHT TO RECEIVE AND RELEASE NECESSARY INFORMATION: The Administrator may
release or obtain any information necessary for the application, implementation and determination of
this Plan or other Plans without consent or notice to any person. This information may be released to or
obtained from any insurance company, organization, or person subject to applicable law. Any individual
claiming benefits under this Plan shall furnish to the Administrator such information as may be
necessary to implement this provision.
12.08 CLAIM FOR BENEFITS: To obtain payment of any benefits under the Plan a Participant must comply
with the rules and procedures of the particular benefit program elected pursuant to this Plan under which
the Participant claims a benefit.
12.09 GENERAL CLAIMS REVIEW PROCEDURE: This provision shall apply only to the extent that a
claim for benefits is not governed by a similar provision of a benefit program available under this Plan
or is not governed by Section 12.10.
(a) Initial Claim for Benefits. Each Participant may submit a claim for benefits to the Administrator as
provided in Section 12.08. A Participant shall have no right to seek review of a denial of benefits, or
to bring any action in any court to enforce a claim for benefits prior to his filing a claim for benefits
and exhausting his rights to review under this section.
When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the
claimant shall be notified of the approval or the denial within (90) days after the receipt of such
claim unless special circumstances require an extension of time for processing the claim. If such an
extension of time for processing is required, written notice of the extension shall be furnished to the
claimant prior to the termination of the initial ninety (90) day period which shall specify the special
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DocuSign Envelope ID: 61ACO2EO-5B61-4CCD-BO79-A6CEOFD56332
SECTION XI
AMENDMENT AND TERMINATION
11.01 AMENDMENT: The Employer shall have the right at any time, and from time to time, to amend, in
whole or in part, any or all of the provisions of this Plan, provided that no such amendment shall change
the terms and conditions of payment of any benefits to which Participants and covered dependents
otherwise have become entitled to under the provisions of the Plan, unless such amendment is made to
comply with federal or local laws or regulations. The Employer also shall have the right to make any
amendment retroactively which is necessary to bring the Plan into conformity with the Code. In
addition, the Employer may amend any provisions or any supplements to the Plan and may merge or
combine supplements or add additional supplements to the Plan, or separate existing supplements into
an additional number of supplements.
11.02 TERMINATION: The Employer shall have the right at any time to terminate this Plan, provided that
such termination shall not eliminate any obligations of the Employer which therefore have arisen under
the Plan.
SECTION XII
:_)MOOR_ t: ent,
12.01 NAMED FIDUCIARIES: The Administrator shall be the fiduciary of the Plan.
12.02 APPOINTMENT OF RECORDKEEPER: The Employer may appoint a Reimbursement Recordkeeper
which shall have the power and responsibility of performing recordkeeping and other ministerial duties
arising under the Medical Expense Reimbursement Plan and the Dependent Care Reimbursement Plan
provisions of this Plan. The Reimbursement Recordkeeper shall serve at the pleasure of, and may be
removed by, the Employer without cause. The Recordkeeper shall receive reasonable compensation for
its services as shall be agreed upon from time to time between the Administrator and the Recordkeeper.
12.03 POWERS AND RESPONSIBILITIES OF ADMIMSTRATOR:
(a) General. The Administrator shall be vested with all powers and authority necessary in order to
amend and administer the Plan, and is authorized to make such rules and regulations as it may deem
necessary to carry out the provisions of the Plan. The Administrator shall determine any questions
arising in the administration (including all questions of eligibility and determination of amount, time
and manner of payments of benefits), construction, interpretation and application of the Plan, and the
decision of the Administrator shall be final and binding on all persons.
(b) Recordkeenine. The Administrator shall keep full and complete records of the administration of the
Plan. The Administrator shall prepare such reports and such information concerning the Plan and
the administration thereof by the Administrator as may be required under the Code or ERISA and the
regulations promulgated thereunder.
(c) Inspection of Records. The Administrator shall, during normal business hours, make available to
each Participant for examination by the Participant at the principal office of the Administrator a copy
of the Plan and such records of the Administrator as may pertain to such Participant. No Participant
shall have the right to inquire as to or inspect the accounts or records with respect to other
Participants.
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DocuSign Envelope ID: 61ACO2EO-5861-4CCD-BO79-A8CEOFD56332
SECTION X
HEALTH SAVINGS ACCOUNTS
10.01 PURPOSE: If elected by the Employer in Section F.8 of the Adoption Agreement, the Plan will permit
pre-tax contributions to the Health Savings Account, and the provisions of this Article X shall apply.
10.02 BENEFITS: A Participant can elect benefits under the Health Savings Accounts portion of this Plan by
electing to pay his or her Health Savings Account contributions on a pre-tax salary reduction basis. In
addition, the Employer may make contributions to the Health Savings Account for the benefit of the
Participant.
10.03 TERMS, CONDITIONS AND LIMITATION:
(a) Maximum Benefit. The maximum annual contributions that may be made to a Participant's Health
Savings Account under this Plan is set forth in Section F.8 of the Adoption Agreement.
(b) Mid -Year Election Changes. Notwithstanding any to the contrary herein, a Participant election with
respect to contributions for the Health Savings Account shall be revocable during the duration of the
Plan Year to which the election relates. Consequently, a Participant may change his or her election
with respect to contributions for the Health Savings Account at any time.
10.04 RESTRICTIONS ON MEDICAL REIMBURSEMENT PLAN: If the Employer has elected in Section
F.8 of the Adoption Agreement both Health Savings Accounts under this Plan and the Medical Expense
Reimbursement Plan, then the Eligible Medical Expenses that may be reimbursed under the Medical
Reimbursement Plan for Participants who are eligible for and elect to participate in Health Savings
Accounts shall be limited as set forth in Section F.8 of the Adoption Agreement.
10.05 NO ESTABLISHMENT OF ERISA PLAN: It is the intent of the Employer that the establishment of
Health Savings Accounts are completely voluntary on the part of Participants, and that, in accordance
with Department of Labor Field Assistance Bulletin 2004-1, the Health Savings Accounts are not
"employee welfare benefit plans" for purposes of Title I of ERISA.
26
DocuSign Envelope ID: 61ACO2EO-58814CCD-B079-A8CEOFD56332
Code Section 414(q)) or their dependents, as provided in Code Section 129. In addition, no more
than 25 percent of the aggregate Eligible Dependent Care Expenses shall be reimbursed during a
Plan Year to five percent owners, as provided in Code Section 129.
9.04 DEFINITIONS:
(a) "Dependent" (for purposes of this Section DC) means any individual who is:
(i) a Participant's qualifying child (as defined in Code Section .152 (c)) who has not attained
the age of 13; or
(ii) a dependent (qualifying child or qualifying relative, as defined in Code Section 152 (c)
and (d), respectively) or the spouse of a Participant who is physically or mentally
incapable of self-care, and who has the same principal place of abode as the taxpayer for
more than half of the taxable year. For purposes of this Dependent Care Reimbursement
Plan, an individual shall be considered physically or mentally incapable of self-care if, as
a result of a physical or mental defect, the individual is incapable of caring for his or her
hygienic or nutritional needs, or requires full-time attention of another person for his or
her own safety or the safety of others.
(b) "Dependent Care Center" (for purposes of this Section IX) shall be a facility which:
(i) provides care for more than six individuals (other than individuals who reside at the
facility);
(ii) receives a fee, payment, or grant for providing services for any of the individuals
(regardless of whether such facility is operated for profit); and
(iii) satisfies all applicable laws and regulations of a state or unit of local government.
(c) "Eligible Dependent Care Expenses" (for purposes of this Section IX) shall mean expenses incurred
by a Participant which are:
(i) incurred for the care of a Dependent of the Participant or for related household services;
(ii) paid or payable to a Dependent Care Service Provider; and
(iii) incurred to enable the Participant to be gainfully employed for any period for which there
are one or more Dependents with respect to the Participant.
"Eligible Dependent Care Expenses" shall not include expenses incurred for services outside the
Participant's household for the care of a Dependent unless such Dependent is (i) a qualifying
child (as defined in Code Section 152 (c)) under the age of 13, or (ii) a dependent (qualifying
child or qualifying relative, as defined in Code Section 152 (c) and (d), respectively)), who is
physically or mentally incapable of self-care, and who has the same principal place of abode as
the Participant for more than half of the taxable year, or (iii) the spouse of a Participant who is
physically or mentally incapable of self-care, and who has the same principal place of abode as
the Participant for more than half of the taxable year. Eligible Dependent Care Expenses shall be
deemed to be incurred at the time the services to which the expenses relate are rendered.
(d) "Dependent Care Service Provider" (for purposes of this Section IX) means:
(i) a Dependent Care Center, or
(ii) a person who provides care or other services described in Section 9.04(b) and who is not
a related individual described in Section 129(c) of the Code.
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DocuSign Envelope ID: 61ACO2EO-5881-4CCD-9079-ASCEOFD56332
provided in Code Section 129, for Participants who elect this benefit, and all provisions of this Section
IX shall be construed in a manner consistent with that intention.
9.02 ELIGIBILITY: The eligibility provisions are set forth in Item F(6) of the Adoption Agreement.
9.03 TERMS, CONDITIONS, AND LIMITATIONS:
(a) Accounts. The Reimbursement Recordkeeper shall establish a recordkeeping account for each
Participant. The Reimbursement Recordkeeper shall maintain a record of each account on an on-
going basis, increasing the balances as contributions are credited during the year and decreasing the
balances as Eligible Dependent Care Expenses are reimbursed. No interest shall be payable on
amounts recorded in any Participant's account.
(b) Maximum Benefit. The maximum amount of reimbursement for each Participant shall be limited to
the amount of the Participant's allocation to the program during the Plan Year not to exceed the
maximum amount set forth in Item F(6) of the adoption agreement.
(c) For purpose of this Section IX, the phrase "earned income" shall mean wages, salaries, tips and other
employee compensation, but only if such amounts are includible in gross income for the taxable
year. A Participant's spouse who is physically or mentally incapable of self-care as described in
Section 9.04(a)(ii) or a spouse who is a full-time student within the meaning of Code Section
21(e)(7) shall be deemed to have earned income for each month in which such spouse is so disabled
(or a full-time student). The amount of such deemed earned income shall be $250 per month in the
case of one Dependent and $500 per month in the case of two or more Dependents.
(d) Claim Procedure. In order to be reimbursed for any dependent care expenses incurred during the
Plan Year, the Participant shall complete the form(s) provided for such purpose by the
Reimbursement Recordkeeper. The Participant shall submit the completed form to the
Reimbursement Recordkeeper with an original bill or other proof of the expense from an
independent third party acceptable to the Reimbursement Recordkeeper. No reimbursement shall be
made on the basis of an incomplete form or inadequate evidence of the expense as determined by the
Reimbursement Recordkeeper. Claims for reimbursement of Eligible Dependent Care Expenses
must be submitted no later than the ninetieth (90th) day following the last day of the Plan Year
during which the Eligible Dependent Care Expenses were incurred. Reimbursement payments shall
only be made to the Participant, or the Participant's legal representative in the event of the incapacity
or death of the Participant. Forms for reimbursement shall be reviewed in accordance with the
claims procedure set forth in Section XII.
(e) Funding. The funding of the Dependent Care Reimbursement Plan shall be through contributions by
the Employer from its general assets to the extent of Elective Contributions directed by Participants.
Such contributions shall be made by the Employer when benefit payments and account
administration expenses become due and payable under this Dependent Care Expense
Reimbursement Plan.
(f) Forfeiture. Any amounts remaining to the credit of the Participant at the end of the Plan Year and
not used for Eligible Dependent Care Expenses incurred during the Plan Year shall be forfeited and
remain assets of the Plan.
(g) Nondiscrimination. Benefits provided under this Dependent Care Reimbursement Plan shall not be
provided in a manner that discriminates in favor of Highly Compensated Employees (as defined in
24
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-8079-ABCEOFD56332
Rev. Rul. 2003-43, and this Section 8.05 shall be construed and interpreted in a manner necessary to
comply with such guidelines.
8.06 GRACE PERIOD: If the Employer elects in Section F.7 of the Adoption Agreement to permit a Grace
Period with respect to the Medical Reimbursement Plan, the provisions of this Section 8.06 shall apply.
Notwithstanding anything to the contrary herein and in accordance with Internal Revenue Service Notice
2005-42; a Participant who has unused contributions relating to the Medical Reimbursement Plan from
the immediately preceding Plan Year, and who incurs Eligible Medical Expenses for such qualified
benefit during the Grace Period, may be paid or reimbursed for those Eligible Medical Expenses from
the unused contributions as if the expenses had been incurred in the immediately preceding Plan Year.
For purposes of this Section, `Grace Period' shall mean the period extending to the 151h day of the third
calendar month after the end of the immediately preceding Plan Year to which it relates. Eligible
Medical Expenses incurred during the Grace Period shall be reimbursed fust from unused contributions
allocated to the Medical Reimbursement Plan for the prior Plan Year, and then from unused
contributions for the current Plan Year, if participant is enrolled in current Plan Year.
8.07 Carryover: If the Employer elects in Section F.7 of the Adoption Agreement to permit a Carryover with
respect to the Medical Reimbursement Plan, the provisions of this Section 8.07 shall apply.
Notwithstanding anything to the contrary herein and in accordance with Internal Revenue Service Notice
2013-71, the Carryover for a Participant who has an amount remaining unused as of the end of the run-
off period for the Plan Year, may be used to pay or reimburse Eligible Medical Expenses during the
following entire Plan Year. The Carryover does not count against or otherwise affect the Maximum
benefit set forth in Section 8.03 (b). Eligible Medical Expenses incurred during a Plan Year shall be
reimbursed first from unused contributions for the current Plan Year, and then from any Carryover
carried over from the preceding Plan Year. Any unused amounts from the prior Plan Year that are used
to reimburse a current Plan Year expense (a) reduce the amounts available to pay prior Plan Year
expenses during the run-off period; (b) must be counted against any Carryover amount from the prior
Plan Year, and (c) cannot exceed the maximum Carryover from the prior Plan Year. If the Employer
elects to apply Section 8.06 in Section F.7 of the Adoption Agreement, this Section 8.07 shall not apply.
8.08 QUALIFIED RESERVIST DISTRIBUTIONS: Notwithstanding anything in the Plan to the
contrary, an individual who, by reason of being a member of a reserve component (as defined in
37 U.S.C. § 101), is ordered or called to active duty for a period in excess of 179 days or for an
indefinite period may elect to receive a distribution of all or a portion of the unused Elective
Contributions in his or her Account relating to the Medical Expense Reimbursement Plan if the
distribution is made during the period beginning on, the date of such order or call and ending on
the last date that reimbursements could otherwise be made under the Plan for the Plan Year that
includes the date of such order or call. If the distribution is for the entire amount of unused
Elective Contributions available in the Medical Expense Reimbursement Plan, then no additional
reimbursement requests will be processed for the remainder of the Plan Year.
SECTION IX
DEPENDENT CARE REIMBURSEMENT PLAN
9.01 PURPOSE: The Dependent Care Reimbursement Plan is designed to provide for reimbursement of
certain employment-related dependent care expenses of the Participant. It is the intention of the
Employer that amounts allocated for this benefit shall be eligible for exclusion from gross income, as
23
DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-6079-A8CEOFD56332
(a) Substantiation. The following procedures shall be applied for purposes of substantiating claimed
Eligible Medical Expenses after the use of a Debit Card to pay the claimed Eligible Medical
Expense:
(i) If the dollar amount of the transaction at a health care provider equals the dollar amount
of the co -payment for that service under the Employer's major medical plan of the
specific employee -cardholder, the charge is fully substantiated without the need for
submission of a receipt or further review.
(ii) If the merchant, service provider, or other independent third -party (e.g., pharmacy benefit
manager), at the time and point of sale, provides information to verify to the
Recordkeeper (including electronically by e-mail, the internet, intranet, or telephone) that
the charge is for a medical expense, the charge is fully substantiated without the need for
submission of a receipt or further review.
(b) Status of Charges. All charges to a Debit Card, other than co -payments and real-time substantiation
as described in Subsection (a) above, are treated as conditional pending confirmation of the charge,
and additional third -party information, such as merchant or service provider receipts, describing the
service or product, the date of the service or sale, and the amount, must be submitted for review and
substantiation.
(c) Correction Procedures for Improper Payments. In the event that a claim has been reimbursed and is
subsequently identified as not qualifying for reimbursement, one or all of the following procedures
shall apply:
(i) First, upon the Recordkeeper's identification of the improper payment, the Eligible
Employee will be required to pay back to the Plan an amount equal to the improper
payment.
(ii) Second, where the Eligible Employee does not pay back to the Plan the amount of the
improper payment, the Employer will have the amount of the improper payment withheld
from the Eligible Employee's wages or other compensation to the extent consistent with
applicable law.
(iii) Third, if the improper payment still remains outstanding, the Plan may utilize a claim
substitution or offset approach to resolve improper claims payments.
(iv) If the above correction efforts prove unsuccessful, or are otherwise unavailable, the
Eligible Employee will remain indebted to the Employer for the amount of the improper
payment. In that event and consistent with its business practices, the Employer may treat
the payment as it would any other business indebtedness.
(v) In addition to the above, the Employer and the Plan may take other actions they may
deem necessary, in their sole discretion, to ensure that further violations of the terms of
the Debit Card do not occur, including, but not limited to, denial of access to the Debit
Card until the indebtedness is repaid by the Eligible Employee.
(d) Intent to Comply with Rev. Rul. 2003-43. It is the Employer's intent that any use of Debit Cards to
pay Eligible Medical Expenses shall comply with the guidelines for use of such cards set forth in
22
DocuSign Envelope ID: 61ACO2EO-5BB1-4CCD-B079-ABCEOFD56332
For purposes of this paragraph, "medically necessary leave of absence" means a leave of absence of
the child from a post -secondary educational institution, or any other change in enrollment of the
child at the institution, that: (i) commences while the child is suffering from a serious illness or
injury, (ii) is medically necessary; and (iii) causes the child to lose student status for purposes of
coverage under the terms of the Plan. A written certification must be provided by a treating
physician of the dependent child to the Plan in order for the continuation coverage requirement to
apply. The physician's certification must state that the child is suffering from a serious illness or
injury and that the leave of absence (or other change in enrollment) is medically necessary.
8.04 ELIGIBLE MEDICAL EXPENSES:
(a) (a) Eligible Medical Expense in General. The phrase `Eligible Medical Expense' means any
expense incurred by a Participant or any of his Dependents (subject to the restrictions in Sections
8.04(b) and (c)) during a Plan Year that (i) qualifies as an expense incurred by the Participant or
Dependents for medical care as defined in Code Section 213(d) and meets the requirements
outlined in Code Section 125, (ii) is excluded from gross income of the Participant under Code
Section 105(b), and (iii) has not been and will not be paid or reimbursed by any other insurance
plan, through damages, or from any other source. Notwithstanding the above, capital
expenditures are not Eligible Medical Expenses under this Plan. Further, notwithstanding the
above, effective January 1, 2011, only the following drugs or medicines will constitute Eligible
Medical Expenses:
(i.) Drugs or medicines that require a prescription;
(ii.) Drugs or medicines that are available without a prescription ("over-the-counter
drugs or medicines") and the Participant or Dependent obtains a prescription; and
(iii.) Insulin.
(b) Expenses Incurred After Commencement of Participation. Only medical care expenses incurred by a
Participant or the Participant's Dependent(s) on or after the date such Participant commenced
participation in the Medical Expense Reimbursement Plan shall constitute an Eligible Medical
Expense.
(c) Eligible Expenses Incurred by Dependents. For purposes of this Section, Eligible Medical Expenses
incurred by Dependents defined in Section 2.04(c) are eligible for reimbursement if incurred after
March 30, 2010; Eligible Medical Expenses incurred by Dependents defined in Sections 2.04(a) and
(b) are eligible for reimbursement if incurred either before or after March 30, 2010 (subject to the
restrictions of Section 8.04(b)).
(d) Health Savings Accounts. If the Employer has elected in Item F.8 of the Adoption Agreement to
allow Eligible Employees to contribute to Health Savings Accounts under the Plan, then for a
Participant who is eligible for and elects to contribute to a Health Savings Accounts, Eligible
Medical Expenses shall be limited as set forth in Item F.8 of the Adoption Agreement.
8.05 USE OF DEBIT CARD: In the event that the Employer elects to allow the use of debit cards ("Debit
Cards") for reimbursement of Eligible Medical Expenses (other than over-the-counter drugs or
medicines) under the Medical Expense Reimbursement Plan, the provisions described in this Section
shall apply. However, beginning January 1, 2011, a Debit Card may not be used to purchase drugs or
medicines over-the-counter.
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DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-8079-A8CEOFD56332
which the qualifying event occurs, by contributing monthly (from their personal assets previously
subject to taxation) to the Employer/Administrator, 102% of the amount of desired reimbursement
through the end of the Plan Year in which the qualifying event occurs. Specifically, such individuals
will be eligible for COBRA continuation coverage only if they have a positive Medical Expense
Reimbursement Account balance on the date of the qualifying event. Participants who have a deficit
balance in their Medical Expense Reimbursement Account on the date of their qualifying event shall
not be entitled to elect COBRA coverage. In lieu of COBRA, Participants may continue their
coverage through the end of the current Plan Year by paying those premiums out of their last
paycheck on a pre-tax basis.
(g) Nondiscrimination. Benefits provided under this Medical Expense Reimbursement Plan shall not be
provided in a manner that discriminates in favor of Employees or Dependents who are highly
compensated individuals, as provided under Section 105(h) of the Code and regulations promulgated
thereunder.
(h) Uniform Coverage Rule. Notwithstanding that a Participant has not had withheld and credited to
his account all of his contributions elected with respect to a particular Plan Year, the entire aggregate
annual amount elected with respect to this Medical Expense Reimbursement Plan (increased by any
Carryover to the Plan Year), shall be available at all times during such Plan Year to reimburse the
participant for Eligible Medical Expenses with respect to this Medical Expense Reimbursement
Plan. To the extent contributions with respect to this Medical Expense Reimbursement Plan are
insufficient to pay such Eligible Medical Expenses, it shall be the Employer's obligation to provide
adequate funds to cover any short fall for such Eligible Medical Expenses for a Participant; provided
subsequent contributions with respect to this Medical Expense Reimbursement Plan by the
Participant shall be available to reimburse the Employer for funds advanced to cover a previous
short fall.
(i) Uniformed Services Employment and Reemployment Rights Act. Notwithstanding anything to the
contrary herein, this Medical Expense Reimbursement Plan shall comply with the applicable
provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994 (Public
Law 103-353).
(j) Proration of Limit. In the event that the Employer has purchased a uniform coverage risk policy
from the Recordkeeper, then the Maximum Coverage amount specified in Section F.7 of the
Adoption Agreement shall be pro rated with respect to (i) an Employee who becomes a Participant
and enters the Plan during the Plan Year, and (ii) short plan years initiated by the Employer. Such
Maximum Coverage amount will be pro rated by dividing the annual Maximum Coverage amount
by 12, and multiplying the quotient by the number of remaining months in the Plan Year for the new
Participant or the number of months in the short Plan Year, as applicable.
(k) Continuation Coverage for Certain Dependent Children. In the event that benefits under the Medical
Expense Reimbursement Plan does not qualify for the exception from the portability rules of
HIPAA, then, effective for Plan Years beginning on or after October 9, 2009, notwithstanding the
foregoing provisions, coverage for a Dependent child who is enrolled in the Medical Expense
Reimbursement Plan as a student at a post -secondary educational institution will not terminate due
to a medically necessary leave of absence before a date that is the earlier of:
the date that is one year after the first day of the medically necessary leave of absence; or
the date on which such coverage would otherwise terminate under the terms of the Plan.
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for this benefit shall be eligible for exclusion from gross income, as provided in Code Sections 105 and
106, for Participants who elect this benefit and all provisions of this Section VIII shall be construed in a
manner consistent with that intention.
8.02 ELIGIBILITY: The eligibility provisions are set forth in Item F(7) of the Adoption Agreement.
8.03 TERMS, CONDITIONS, AND LIMITATIONS:
(a) Accounts. The Reimbursement Recordkeeper shall establish a recordkeeping account for each
Participant. The Reimbursement Recordkeeper shall maintain a record of each account on an on-
going basis, increasing the balances as contributions are credited during the year and decreasing the
balances as Eligible Medical Expenses are reimbursed. No interest shall be payable on amounts
recorded in any Participant's account.
(b) Maximum benefit. The maximum amount of reimbursement for each Participant shall be limited to
the amount of the Participant's Elective Contribution allocated to the program during the Plan Year,
not to exceed the maximum amount set forth in Item F(7) of the Adoption Agreement.
(c) Claim Procedure, hi order to be reimbursed for any medical expenses incurred during the Plan Year,
the Participant shall complete the form(s) provided for such purpose by the Reimbursement
Recordkeeper. The Participant shall submit the completed form to the Reimbursement
Recordkeeper with an original bill or other proof of the expense acceptable to the Reimbursement
Recordkeeper. No reimbursement shall be made on the basis of an incomplete form or inadequate
evidence of expense as determined by the Reimbursement Recordkeeper. Forms for reimbursement
of Eligible Medical Expenses must be submitted no later than the last day of the third month
following the last day of the Plan Year during which the Eligible Medical Expenses were incurred.
Reimbursement payments shall only be made to the Participant, or the Participant's legal
representative in the event of incapacity or death of the Participant. Forms for reimbursement shall
be reviewed in accordance with the claims procedure set forth in Section XII.
(d) Funding. The funding of the Medical Reimbursement Plan shall be through contributions by the
Employer from its general assets to the extent of Elective Contributions directed by Participants.
Such contributions shall be made by the Employer when benefit payments and account
administrative expenses become due and payable under this Medical Expense Reimbursement Plan.
(e) _Forfeiture. Subject to Section 8.06 and 8.07, any amounts remaining to the credit of the Participant
at the end of the Plan Year and not used for Eligible Medical Expenses incurred during the
Participant's participation during the Plan Year shall be forfeited and shall remain assets of the Plan.
With respect to a Participant who terminates employment with the Employer and who has not
elected to continue coverage under this Plan pursuant to COBRA rights referenced under Section
8.03(f) herein, such Participant shall not be entitled to reimbursement for Eligible Medical Expenses
incurred after his termination date regardless if such Participant has any amounts of Employer
Contributions remaining to his credit. Upon the death of any Participant who has any amounts of
Employer Contributions remaining to his credit, a dependent of the Participant may elect to continue
to claim reimbursement for Eligible Medical Expenses in the same manner as the Participant could
have for the balance of the Plan Year.
(f) COBRA. To the extent required by Section 4980B of the Code and Sections 601 through 607 of
ERISA (`COBRA"), a Participant and a Participant's Dependents shall be entitled to elect continued
participation in this Medical Expense Reimbursement Plan only through the end of the plan year in
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6.02 ELIGIBILITY: Eligibility will be as required in Item F(2) of the Adoption Agreement.
6.03 DESCRIPTION OF BENEFITS: The benefits available under this Plan will be as defined in Item F(2)
of the Adoption Agreement.
6.04 TERMS, CONDITIONS AND LIMITATIONS: The terms, conditions and limitations of the Disability
Income Benefits offered shall be as specifically described in the Policy identified in the Adoption
Agreement.
6.05 SECTION 104 AND 106 PLAN: It is the intention of the Employer that the premiums paid for these
benefits shall be eligible for exclusion from the gross income of the Participants covered by this benefit
plan, as provided in Code Sections 104 and 106, and all provisions of this benefit plan shall be
construed in a manner consistent with that intention.
6.06 CONTRIBUTIONS: Contributions for this benefit will be provided by the Employer on behalf of a
Participant as provided for in Item E of the Adoption Agreement.
SECTION VII
GROUP AND INDIVIDUAL LIFE INSURANCE PLAN
7.01 PURPOSE: This benefit provides group life insurance benefits to Participants and may provide certain
individual policies as provided for in Item F(5) of the Adoption Agreement.
7.02 ELIGIBMITY: Eligibility will be as required in Item F(5) of the Adoption Agreement.
7.03 DESCRIPTION OF BENEFITS: The benefits available under this Plan will be as defined in Item F(5)
of the Adoption Agreement.
7.04 TERMS, CONDITIONS. AND LIMITATIONS: The terms, conditions, and limitations of the group life
insurance are specifically described in the Policy identified in the Adoption Agreement.
7.05 SECTION 79 PLAN: It is the intention of the Employer that the premiums paid for the benefits
described in Item F(5) of the Adoption Agreement shall be eligible for exclusion from the gross income
of the Participants covered by this benefit plan to the extent provided in Code Section 79, and all
provisions of this benefit plan shall be construed in a manner consistent with that intention.
7.06 CONTRIBUTIONS: Contributions for this benefit will be provided by the Employer on behalf of a
Participant as provided for in Item E of the Adoption Agreement. Any individual policies purchased by
the Employer for the Participant will be owned by the Participant.
SECTION VIII
MEDICAL EXPENSE REIMBURSEMENT PLAN
8.01 PURPOSE: The Medical Expense Reimbursement Plan is designed to provide for reimbursement of
Eligible Medical Expenses (as defined in Section 8.04) that are not reimbursed under an insurance plan,
through damages, or from any other source. It is the intention of the Employer that amounts allocated
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4.07 MAXIMUM EMPLOYER CONTRIBUTIONS: With respect to each Participant, the maximum amount
made available to pay benefits for any Plan Year shall not exceed the Employer's Contribution specified
in the Adoption Agreement and as provided in this Plan.
SECTION V
GROUP MEDICAL INSURANCE BENEFIT PLAN
5.01 PURPOSE: These benefits provide the group medical insurance benefits to Participants.
5.02 ELIGIBILITY: Eligibility will be as required in Items F(1), F(3), and F(4) of the Adoption Agreement.
5.03 DESCRIPTION OF BENEFITS: The benefits available under this Plan will be as defined in Items F(1),
F(3), and F(4) of the Adoption Agreement.
5.04 TERMS, CONDITIONS AND LIMITATIONS: The terms, conditions and limitations of the benefits
offered shall be as specifically described in the Policy identified in the Adoption Agreement.
5.05 COBRA: To the extent required by Section 4980B of the Code and Sections 601 through 607 of
ERISA, Participants and Dependents shall be entitled to continued participation in this Group Medical
Insurance Benefit Plan by contributing monthly (from their personal assets previously subject to
taxation) 102% of the amount of the premium for the desired benefit during the period that such
individual is entitled to elect continuation coverage, provided, however, in the event the continuation
period is extended to 29 months due to disability, the premium to be paid for continuation coverage for
the 11 month extension period shall be 150% of the applicable premium.
5.06 SECTION 105 AND 106 PLAN: It is the intention of the Employer that these benefits shall be eligible
for exclusion from the gross income of the Participants covered by this benefit plan, as provided in Code
Sections 105 and 106, and all provisions of this benefit plan shall be construed in a manner consistent
with that intention. It is also the intention of the Employer to comply with the provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 as outlined in the policies identified in the
Adoption Agreement.
5.07 CONTRIBUTIONS: Contributions for these benefits will be provided by the Employer on behalf of a
Participant as provided for in Item E of the Adoption Agreement,
5.08 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT:
Notwithstanding anything to the contrary herein, the Group Medical Insurance Benefit Plan shall comply
with the applicable provisions of the Uniformed Services Employment and Reemployment Rights Act of
1994 (Public Law 103-353).
SECTION VI
DISABILITY INCOME BENEFIT PLAN
6.01 PURPOSE: This benefit provides disability insurance designated to provide income to Participants
during periods of absence from employment because of disability.
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(ii) revoke their elections and make a prospective election under another benefit option offering
similar coverage, or (iii) revoke election completely if no similar coverage is available, including in
spouse or dependent's plan. If the cost significantly decreases, employees may elect coverage even
if they had not previously participated and may drop their previous election for a similar coverage
option in order to elect the benefit package option that has decreased in cost during the year. If the
increased or decreased cost of a benefit package option under the Plan is insignificant, the
participant's salary reduction amount shall be automatically adjusted.
(b) Significant curtailment of coverage.
(i) With no loss of coverage. If the coverage under a benefit package option is significantly
curtailed or ceases during the Plan Year, affected Participants may revoke their elections for the
curtailed coverage and make a new prospective election for coverage under another benefit
package option providing similar coverage.
(ii) With loss of coverage. If there is a significant curtailment of coverage with loss of coverage,
affected Participants may revoke election for curtailed coverage and make a new prospective
election for coverage under another benefit package option providing similar coverage, or drop
coverage if no similar benefit package option is available.
(c) Addition or Significant Improvement of Benefit Package Option. If during the Plan Year a new
benefit package option is added or significantly improved, eligible employees, whether currently
participating or not, may revoke their existing election and elect the newly added or newly improved
option.
(d) Change in Coverage of a Spouse or Dependent Under Another Employer's Plan. If there is a
change in coverage of a spouse, former spouse, or Dependent under another employer's plan, a
Participant may make a prospective election change that is on account of and corresponds with a
change made under the plan of the spouse or Dependent. This rule applies if (1) mandatory changes
in coverage are initiated by either the insurer of spouse's plan or by the spouse's employer, or (2)
optional changes are initiated by the spouse's employer or by the spouse through open enrollment.
(e) Loss of coverage under other group health coverage. If during the Plan Year coverage is lost under
any group health coverage sponsored by a governmental or educational institution, a Participant may
prospectively change his or her election to add group health coverage for the affected Participant or
his or her spouse or dependent.
4.04 CASH BENEFIT: Available amounts not used for the purchase of benefits under this Plan may be
considered a cash benefit under the Plan payable to the Participant as taxable income to the extent
indicated in Item E of the Adoption Agreement.
4.05 PAYMENT FROM EMPLOYER'S GENERAL ASSETS: Payment of benefits under this Plan shall be
made by the Employer from Elective Contributions which shall be held as a part of its general assets.
4.06 EMPLOYER MAY HOLD ELECTIVE CONTRIBUTIONS: Pending payment of benefits in accordance
with the terms of this Plan, Elective Contributions may be retained by the Employer in a separate
account or, if elected by the Employer and as permitted or required by regulations of the Internal
Revenue Service, Department of Labor or other governmental agency, such amounts of Elective
Contributions may be held in a trust pending payment.
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(h) Cancellation due,to reduction in hours of service. A Participant may cancel group health plan (as that
term is defined in Code Section 9832(a)) coverage, except Health FSA coverage, under the Employer's
Plan if both of the following conditions are met:
(i) The Participant has been in an employment status under which the Participant was reasonably
expected to average at least 30 hours of service per week and there is a change in that
Participant's status so that the Participant will reasonably be expected to average less than 30
hours of service per week after the change, even if that reduction does not result in the
Participant ceasing to be eligible under the group health plan; and
(ii) The cancellation of the election of coverage under the Employer's group health plan coverage
corresponds to the intended enrollment of the Participant, and any related individuals who cease
coverage due to the cancellation, in another plan that provides minimum essential coverage with
the new coverage effective no later than the first day of the second month following the month
that includes the date the original coverage is cancelled.
(i) Cancellation due to enrollment in a Qualified Health Plan. A participant may cancel group health
plan (as that term is defined in Code Section 9832(a)) coverage, except Health FSA coverage, under the
Employer's Plan if both of the following conditions are met:
(i) The Participant is eligible for a Special Enrollment Period (as defined in Code Section 9801(f))
to enroll in a Qualified Health Plan(as described in section 1311 of the Patient Protection and
Affordable Care Act (PPACA)) through a competitive marketplace established under section
131 l(c) of PPACA (Marketplace), pursuant to guidance issued by the Department of Health and
Human Services and any other applicable guidance, or the Participant seeks to enroll in a
Qualified Health Plan through a Marketplace during the Marketplace's annual open enrollment
period; and
(ii) The cancellation of the election of coverage under the Employer's group health plan coverage
corresponds to the intended enrollment of the Participant and any related individuals who cease
coverage due to the cancellation in a Qualified Health Plan through a Marketplace for new
coverage that is effective beginning no later than the day immediately following the last day of
the original coverage that is cancelled."
Notwithstanding anything to the contrary in this Section 4.02, the change in election rules in this
Section 4.02 do not apply to the Medical Expense Reimbursement Plan, or may not be modified with
respect to the Medical Expense Reimbursement Plan if the Plan is being administered by a
Recordkeeper other than the Employer, unless the Employer and the Recordkeeper otherwise agree
in writing
4.03 OTHER EXCEPTIONS TO IRREVOCABILITY OF ELECTIONS. Other exceptions to the
irrevocability of election requirement permit mid -year election changes and apply to all qualified
benefits except for Medical Expense Reimbursement Plans, as follows:
(a) Change in Cost. If the cost of a benefit package option under the Plan significantly increases during
the plan year, Participants may (i) make a corresponding increase in their salary reduction amount,
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DocuSlgn Envelope ID: 61ACO2EO-5BB1-4CCD-8079-A8CEOFD56332
may revoke a prior election for group health plan coverage and make a new election, provided that
the election change corresponds with such HIPAA special enrollment right. As required by HIPAA,
a special enrollment right will arise in the following circumstances: (i) a Participant or his or her
spouse or Dependent declined to enroll in group health plan coverage because he or she had
coverage, and eligibility for such coverage is subsequently lost because the coverage was provided
under COBRA and the COBRA coverage was exhausted, or the coverage was non -COBRA
coverage and the coverage terminated due to loss of eligibility for coverage or the employer
contributions for the coverage were terminated; (ii) a new Dependent is acquired as a result of
marriage, birth, adoption, or placement for adoption; (iii) the Participant's or his or her spouse's or
Dependent's coverage under a Medicaid plan or under a children's health insurance program (CHIP)
is terminated as a result of loss of eligibility for such coverage and the Participant requests coverage
under the group health plan not later than 60 days after the date of termination of such coverage; or
(iv) the Participant, his or her spouse or Dependent becomes eligible for a state premium assistance
subsidy from a Medicaid plan or through a state children's insurance program with respect to
coverage under the group health plan and the Participant requests coverage under the group health
plan not later than 60 days after the date the Participant, his or her spouse or Dependent is
determined to be eligible for such assistance. An election change under (iii) or (iv) of this provision
must be requested within 60 days after the termination of Medicaid or state health plan coverage or
the determination of eligibility for a state premium assistance subsidy, as applicable: Special
enrollment rights under the health insurance plan will be determined by the terns of the health
insurance plan.
(c) Certain Judgments, Decrees or Orders. If a judgment, decree or order resulting from a divorce, legal
separation, annulment or change in legal custody (including a qualified medical child support order
[QMCSO]) requires accident or health coverage for a Participant's child or for a foster child who is a
dependent of the Participant, the Participant may have a mid -year election change to add or drop
coverage consistent with the Order.
(d) Entitlement to Medicare or Medicaid. If a Participant, Participant's spouse or Participant's
Dependent who is enrolled in an accident or health plan of the Employer becomes entitled to
Medicare or Medicaid (other than coverage consisting solely of benefits under Section 1928 of the
Social Security Act providing for pediatric vaccines), the Participant may cancel or reduce health
coverage under the Employer's Plan. Loss of Medicare or Medicaid entitlement would allow the
Participant to add health coverage under the Employer's Plan.
(e) Family Medical Leave Act. If an Employee is taking leave under the rules of the Family Medical
Leave Act, the Employee may revoke previous elections and re-elect benefits upon return to work.
(f) COBRA Qualifying Event. If an Employee has a COBRA qualifying event (a reduction in hours of
the Employee, or a Dependent ceases eligibility), the Employee may increase his pre-tax
contributions for coverage under the Employer's Plan if a COBRA event occurs with respect to the
Employee, the Employee's spouse or Dependent. The COBRA rule does not apply to COBRA
coverage under another Employer's Plan.
(g) Changes in Eligibility for Adult Children. To the extent the Employer amends a plan listed in Item F
of the Adoption Agreement that provides benefits that are excluded from an Employee's income
under Code Section 105 to provide that Adult Children (as defined in Section 2.04(c)) are eligible to
receive benefits under the plan, an Eligible Employee may make or change an election under this
Plan to add coverage for the Adult Child and to make any corresponding change to the Eligible
Employee's coverage that is consistent with adding coverage for the Adult Child.
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SECTION IV
CONTRIBUTIONS
4.01 EMPLOYER CONTRIBUTIONS: The Employer may pay the costs of the benefits elected under the
Plan with funds from the sources indicated in Item E of the Adoption Agreement. The Employer
Contribution may be made up of Non -Elective Contributions' and/or,Elective Contributions authorized
by each Participant on a salary reduction basis.
4.02 IRREVOCABILITY OF ELECTIONS: A Participant may file a written election form with the
Administrator before the end of the current Plan Year revising the rate of his contributions or
discontinuing such contributions effective as of the fust day of the next following Plan Year. The
Participant's Elective Contributions will automatically terminate as of the date his employment
terminates. Except as provided in this Section 4.02 and Section 4.03, a Participant's election under the
Plan is irrevocable for the duration of the plan year to which it relates. The exceptions to the
irrevocability requirement which would permit a mid -year election change in benefits and the salary
reduction amount elected are set out in the Treasury regulations promulgated under Code Section 125,
which include the following:
(a) Change in Status. A Participant may change or revoke his election under the Plan upon the
occurrence of a valid change in status, but only if such change or termination is made on account of,
and is consistent with, the change in status in accordance with the Treasury regulations promulgated
under Section 125. The Employer, in its sole discretion as Administrator, shall determine whether a
requested change is on account of and consistent with a change in status, as follows:
(1) Change in Employee's legal marital status, including marriage, divorce, death of spouse, legal
separation, and annulment;
(2) Change in number of Dependents, including birth, adoption, placement for adoption, and death;
(3) Change in employment status, including any employment status change affecting benefit
eligibility of the Employee, spouse or Dependent, such as termination or commencement of
employment, change in hours, strike or lockout, a commencement or return from an unpaid
leave of absence, and a change in work site. If the eligibility for either the cafeteria Plan or any
underlying benefit plans.of the Employer of the Employee, spouse or Dependent relies on the
employment status of that individual, and there is a change in that individual's employment
status resulting in gaining or losing eligibility under the Plan, this constitutes a valid change in
status. This category only applies if benefit eligibility is lost or gained as a result of the event.
If an Employee terminates and is rehired within 30 days, the Employee is required to step back
into his previous election. If the Employee terminates.and is rehired after 30 days, the
Employee may either step back into the previous election or make a new election;
(4) Dependent satisfies, or ceases to satisfy, Dependent eligibility requirements due to attainment
of age, gain or loss of student status, marriage or any similar circumstances; and
(5) Residence change of Employee, spouse or Dependent, affecting the Employee's eligibility for
coverage.
(b) Special Enrollment Rights. If a Participant or his or her spouse or Dependent is entitled to special
enrollment rights under a group health plan (other than an excepted benefit), as required by HIPAA
under Code Section 9801(f) or Section 2701(f) of the Public Health Service Act, then a Participant
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DocuSign Envelope ID: 61ACO2EO-5B81-4CCD-B079-A8CEOFD56332
F, an Eligible Employee may elect coverage under this Plan with respect to such Dependent.
Notwithstanding the foregoing, life insurance coverage on the life of a Dependent may not be elected
under this Plan.
3.02 ENROLLMENT: An eligible Employee may enroll (or re -enroll) in the Plan by submitting to the
Employer, during an enrollment period, an Election Form which specifies his or her benefit elections for
the Plan Year and which meets such standards for completeness and accuracy as the Employer may
establish. A Participant's Election Form shall be completed prior to the beginning of the Plan Year, and
shall not be effective prior to the date such form is submitted to the Employer. Any Election Form
submitted by a Participant in accordance with this Section shall remain in effect until the earlier of the
following dates: the date the Participant terminates participation in the Plan; or, the effective date of a
subsequently filed Election Form.
A Participant's right to elect certain benefit coverage shall be limited hereunder to the extent such rights
are limited in the Policy. Furthermore, a Participant will not be entitled to revoke an election after a
period of coverage has commenced and to make a new election with respect to the remainder of the
period of coverage unless both the revocation and the new election are on account of and consistent with
a change in status, or other allowable events, as determined by Section 125 of the Internal Revenue
Code and the regulations thereunder.
3.03 TERMINATION OF PARTICIPATION: A Participant shall continue to participate in the Plan until the
earlier of the following dates:
(a) The date the Participant terminates employment by death, disability, retirement or other
separation from service; or
(b) The date the Participant ceases to work for the Employer as an eligible Employee; or
(c) The date of termination of the Plan; or
(d) The first date a Participant fails to pay required contributions while on a leave of absence.
3.05 SEPARATION FROM SERVICE: The existing elections of an Employee who separates from the
employment service of the Employer shall be deemed to be automatically terminated and the Employee
will not receive benefits for the remaining portion of the Plan Year.
3.06 QUALIFYING LEAVE UNDER FAMILY LEAVE ACT: Notwithstanding any provision to the
contrary in this Plan, if a Participant goes on a qualifying unpaid leave under the Family and Medical
Leave Act of 1993 (FMLA), to the extent required by the FMLA, the Employer will continue to
maintain the Participant's existing coverage under the Plan with respect to benefits under Section V and
Section VIII of the Plan on the same terms and conditions as though he were still an active Employee. If
the Employee opts to continue his coverage, the Employee may pay his Elective Contribution with after-
tax dollars while on leave (or pre-tax dollars to the extent he receives compensation during the leave),
or the Employee may be given the option to pre -pay all or a portion of his Elective Contribution for the
expected duration of the leave on a pre-tax salary reduction basis out of his pre -leave compensation
(including unused sick days or vacation) by making a special election to that effect prior to the date such
compensation would normally be made available to him (provided, however, that pre-tax dollars may
not be utilized to fund coverage during the next plan year), or via other arrangements agreed upon
between the Employee and the Administrator (e.g., the Administrator may fund coverage during the
leave and withhold amounts upon the Employee's return). Upon return from such leave, the Employee
will be permitted to reenter the Plan on the same basis the Employee was participating in the Plan prior
to his leave, or as otherwise required by the FMLA.
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2.19 Insurer
Any insurance company that has issued a policy pursuant to the terms of
this Plan.
2.20 Key Employee
Any Participant who is a "key employee" as defined in Section 416(1) of
the Code.
2.21 Non -Elective
A contribution amount made available by the Employer for the
Contribution
purchase of benefits elected by the Participant.
2.22 Participant
An Employee who has qualified for Plan participation as provided in Item
C of the Adoption Agreement.
2.23 Plan
The Plan referred to in Item A of the Adoption Agreement as may be
amended from time to time.
2.24 Plan Year
The Plan Year as specified in Item D of the Adoption Agreement.
2.25 Policy
An insurance policy issued as a part of this Plan.
2.26 Preventative Care
Medical expenses which meet the safe harbor definition of "preventative
care" set forth in IRS Notice 2004-23, which includes, but is not limited
to, the following: (i) periodic health evaluations, such as annual physicals
(and the tests and diagnostic procedures ordered in conjunction with such
evaluations); (ii) well -baby and/or well-child care; (iii) immunizations for
adults and children; (iv) tobacco cessation and obesity weight -loss
programs; and (v) screening devices. However, preventative care does not
generally include any service or benefit intended to treat an existing
illness, injury or condition.
2.27 Recordkeeper The person designated by the Employer to perform recordkeeping and
other ministerial duties with respect to the Medical Expense
Reimbursement Plan and/or the Dependent Care Reimbursement Plan.
2.28 Related Employer Any employer that is a member of a related group of organizations with
the Employer shown in Item A of the Adoption Agreement, and as
specified under Code Section 414(b), (c) or (m).
SECTION III
ELIGIBILITY, ENROLLMENT, AND PARTICIPATION
3.01 ELIGIBILITY: Each Employee of the Employer who has met the eligibility requirements of Item C of
the Adoption Agreement will be eligible to participate in the Plan on the Entry Date specified or the
Effective Date of the Plan, whichever is later. Dependent eligibility to receive benefits under any of
the plans listed in Item F of the Adoption Agreement will be described in the documents governing
those benefit plans. To the extent a Dependent is eligible to receive benefits under a plan listed in Item
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2.05 Effective Date.
The effective date of this Plan as shown in Item B of the Adoption
Agreement.
2.06 Elective Contribution
The amount the Participant authorizes the Employer to reduce
compensation for the purchase of benefits elected.
2.07 Eligible Employee
Employee meeting the eligibility requirements for participation as shown
in Item C of the Adoption Agreement.
2.08 Employee
Any person employed by the Employer on or after the Effective Date.
2.09 Employer
The entity shown in Item A of the Adoption Agreement, and any Related
Employers authorized to participate in the Plan with the approval of the
Employer. Related Employers who participate in this Plan are listed in
Appendix A to the Adoption Agreement. For the purposes of Section
11.01 and 11.02, only the Employer as shown in Item A of the Adoption
Agreement may amend or terminate the Plan.
2.10 Employer Contributions Amounts that have not been actually received by the Participant and are
available to the Participant for the purpose of selecting benefits under the
Plan. This term includes Non -Elective Contributions and Elective
Contributions through salary reduction.
2.11 Entry Date The date that an Employee is eligible to participate in the Plan.
2.12 ERISA The Employee Retirement Income Security Act of 1974, Public Law 93-
406 and all regulations and rulings issued thereunder, as amended (if
applicable).
2.13 Fiduciary The named fiduciary shall mean the Employer, the Administrator and
other parties designated as such, but only with respect to any specific
duties of each for the Plan as may be set forth in a written agreement.
2.14 Health Savings Account A "health savings account' as defined in Section 223(d) of the Internal
Revenue Code of 1986, as amended established by the Participant with the
HSA Trustee.
2.15 HSA Trustee The Trustee of the Health Savings Account which is designated in Section
F.8 of the Adoption Agreement.
2.16 Highly Compensated Any Employee who at any time during the Plan Year is a "highly
compensated employee" as defined in Section 414(q) of the Code.
2.17 High Deductible Health A health plan that meets the statutory requirements for annual deductibles
Plan and out-of-pocket expenses set forth in Code section 223(c)(2).
2.18 HIPAA The Health Insurance Portability and Accountability Act of 1996, as
amended.
10
DocuSign Envelope ID: 61ACO2EO-5B61-4CCD-8079-A8CEOF056332
Code Section 152(e) applies (such child will be treated as a
dependent of both divorced parents).
(b) Student on a Medically Necessary Leave of Absence: With
respect to any plan that is considered a group health plan under
Michelle's Law (and not a HIPAA excepted benefit under Code
Sections 9831(b), (c) and 9832(c)) and to the extent the Employer is
required by Michelle's Law to provide continuation coverage, a
Dependent includes a child who qualifies as a Tax Dependent
(defined in Section 2.04(a)) because of his or her full-time student
status, is enrolled in a group health plan, and is on a medically
necessary leave of absence from school. The child will continue to
be a Dependent if the medically necessary leave of absence
commences while the child is suffering from a serious illness or
injury, is medically necessary, and causes the child to lose student
status for purposes of the group health plan's benefits coverage.
Written physician certification that the child is suffering from a
serious illness or injury and that the leave of absence is medically
necessary is required at the Administrator's request. The child will
no longer be considered a Dependent as of the earliest date that the
child is no longer on a medically necessary leave of absence, the
date that is one year after the first day of the medically necessary
leave of absence, or the date benefits would otherwise terminate
under either the group health plan or this Plan. Terms related to
Michelle's Law, and not otherwise defined, will have the meaning
provided under the Michelle's Law provisions of Code Section
9813.
(c) Adult Children: With respect to any plan that provides benefits
that are excluded from an Employee's income under Code Section
105, a Dependent includes a child of a Participant who as of the end
of the calendar year has not attained age 27. A `child' for purpose
of this Section 2.04(c) means an individual who is a son, daughter,
stepson, or stepdaughter of the Participant, a legally adopted
individual of the Participant, an individual who is lawfully placed
with the Participant for legal adoption by the Participant, or an
eligible foster child who is,placed with the Participant by an
authorized placement agency or by judgment, decree, or other order
of any court of competent jurisdiction. An adult child described in
this Section 2.04(c) is only a Dependent with respect to benefits
provided after March 30, 2010 (subject to any other limitations of
the Plan).
Dependent for purposes of the Dependent Care Reimbursement Plan
is defined in Section 9.04(a).
DocuSlgn Envelope ID: 61ACO2EO-5BB1-4CCD-BO79-A8CEOF056332
SECTION 125 FLEXIBLE BENEFIT PLAN
SECTION I
PURPOSE
The Employer is establishing this Flexible Benefit Plan in order to make a broader range of benefits available to
its Employees and their Beneficiaries. This Plan allows Employees to choose among different types of benefits
and select the combination best suited to their individual goals, desires, and needs. These choices include an
option to receive certain benefits in lieu of taxable compensation.
In establishing this Plan, the Employer desires to attract, reward, and retain highly qualified, competent
Employees, and believes this Plan will help achieve that goal.
It is the intent of the Employer to establish this Plan in conformity with Section 125 of the Internal Revenue
Code of 1986, as amended, and in compliance with applicable rules and regulations issued by the Internal
Revenue Service. This Plan will grant to eligible Employees an opportunity to purchase qualified benefits
which, when purchased alone by the Employer, would not be taxable.
SECTION II
DEFINITIONS
The following words and phrases appear in this Plan and will have the meaning indicated below unless a
different meaning is plainly required by the context:
2.01 Administrator The Employer unless another has been designated in writing by the
Employer as Administrator within the meaning of Section 3(16) of ERISA
(if applicable).
2.02 Beneficiary Any person or persons designated by a participating Employee to receive
any benefit payable under the Plan on account of the Employee's death.
2.02A Carryover The amount equal to the lesser of (a) any unused amounts from the
immediately preceding Plan Year or (b) five hundred dollars ($500),
except that in no event may the Carryover be less than five dollars ($5).
2.03 Code Internal Revenue Code of 1986, as amended.
2.04 Dependent Any of the following:
(a) Tax Dependent: A Dependent includes a Participant's spouse and
any other person who is a Participant's dependent within the
meaning of Code Section 152, provided that, with respect to any
plan that provides benefits that are excluded from an Employee's
income under Code Section 105, a Participant's dependent (i) is
any person within the meaning of Code Section 152, determined
without regard to Subsections (b)(1), (b)(2), and (d)(1)(B)
thereof, and (ii) includes any child of the Participant to whom
DocuSign Envelope ID: 61ACO2EO-5881-4CCD-BO79-ASCEOFD56332
HEART Act: The provisions in Section 8.08 of the Plan to permit the
Qualified Reservist Distribution of the Heroes Earnings Assistance and
Relief Tax Act (HEART) are elected.
Eligibility Requirements for Participation, if different than Item C.
8. Health Savings Accounts — The Plan permits contributions to be made to a
Health Savings Account on a pretax basis in accordance with Section X of the
Plan and the following provisions:
HSA Trustee — N/A
Maximum Contribution — As indexed annually by the IRS.
Limitation on Eligible Medical Expenses — For purposes of the Medical
Reimbursement Plan, Eligible Medical Expenses of a Participant that is eligible
for and elects to participate in a Health Savings Account shall be limited to
expenses for:
N/A
If the Plan includes the limitation on expenses, a Participant's carryover amounts
(when applicable) will be treated as an election for a limited Medical
Reimbursement Plan for the carryover amounts for any plan year for which the
participant has elected a Health Savings Account for that plan year.
Eligibility Requirements for Participation, if different than Item C.
a. An Employee must complete a Certification of Health Savings Account
Eligibility which confirms that the Participant is an eligible individual who
is entitled to establish a Health Savings Account in accordance with Code
Section 223(c)(1).
b. Eligibility for the Health Savings Account shall begin on the later of (i)
first day of the month coinciding with or next following the Employee's
commencement of coverage under the High Deductible Health Plan, or (ii)
the first day following the end of a Grace Period available to the Employee
with respect to the Medical Reimbursement Accounts that are not limited
to vision and dental expenses (unless the participant has a $0.00 balance
on the last day of the plan year).
C. An Employee's eligibility for the Health Savings Account shall be
determined monthly.
DocuSign Envelope ID: 61ACO2EO-5B814CCD-BO79-A8CEOFD56332
The Plan shall be construed, enforced, administered, and the validity determined in
accordance with the applicable provisions of the Employee Retirement Income Security Act
of 1974, (as amended) if applicable, the Internal Revenue Code of 1986 (as amended), and
the laws of the State of Alaska. Should any provision be determined to be void, invalid, or
unenforceable by any court of competent jurisdiction, the Plan will continue to operate,
and for purposes of the jurisdiction of the court only, will be deemed not to include the
provision determined to be void.
This Plan is hereby adopted
KODIAK ISLAND BOROUG
(Name of Eoyer)
By: 7v�
Title: &&z,4 V /�
APPENDIX A
Related Employers that have adopted this Plan
Name(s):
N/A
THIS DOCUMENT IS NOT COMPLETE WITHOUT SECTIONS I THROUGH XIII
PD0717 115824 6/19/2018 12:15 AM
