Benefits & Compensation
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
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Posted: 2003-01-09 09:54
I'm sure this has been posted before, but I didn't get much when I ran a search, so here goes...
I am considering the possibility of proposing that we set up a flexible health care spending account and / or dependent care account. Before I even bring it up, thought I should get my ducks in a row and find out just how large an undertaking this is and what are the associated costs and administrative / legal pitfalls involved. Any advice would be great!
Thanks!
Beth
mroberts7
Joined: Apr 11, 2002 Posts: 952
Posted: 2003-01-13 04:55
It's not too large of an undertaking since the plan administrator does most of the work. The biggest job you'll have ahead of you is communicating the plan. Again, you'll be able to work with the plan administrator on this, but do everything you can to make meetings mandatory. The more employees that will use the flex plan, the higher the level of satisfaction you'll have.
As far as costs go, it's going to vary from administrator to administrator. Most vendors will charge a set up fee somewhere in the neighborhood of a $1000. Additional fees include a monthly charge per participant, usually $3 per head for medical only and $4 per head for medical and dependent care. The money the employer saves on FICA should offset all of this and then some. Just one other reason to do an effective job communicating the plan.
If you'd like to discuss further, please send me an email.
InfiSoft
Joined: Feb 12, 2002 Posts: 9
Posted: 2003-01-14 06:29
Greetings!
I represent PowerFlex which allows you to administer your flexible spending accounts internally. An evaluation copy of PowerFlex is available at our website: www.infisoft.com
You might also visit the IRS's website. Here's a link to Cafeteria Plan FAQ's.
Posted: 2003-01-14 08:24
I'm a big advocate of Flexible Spending accounts. The rewards are far greater than the pitfalls. Unless you have a workforce who knows more about flexible spending accounts than you do, you will probably never have to worry about the pitfalls.
Dependent care account - instead of a $2400 tax allowance = approx. $240 tax savings, you can defer up to $5k of pre-tax savings. This lowers your employees taxable income by up to $5k annually. You can only submit receipts for what you've contributed. Hurts the first month you're enrolled because you have to be prepared to come up with 2 months day care costs, but after that it flows fine.
Medical spending - Company's set the limit based on their comfort rate. Funds are available immediately, and reimbursed through payroll deductions. Most employees, even when you tell them, don't get the concept. They think they have to accrue the money and then spend it. If someone leaves the plan they have a specified amount of time to cash out their account with funds previously spent otherwise the money defaults to the company. Use it or lose it. On the other hand the company runs the risk of an employee submitting a large receipt and then leaving the company before it's paid back. A great way to sell this is in eye care costs and orthodontics. As a single mom I put 2 kids through braces with this. I never could have afforded it with out the FSA.
In the 9 years I've been administering these plans, the company has never taken a loss. The forfieted amounts are used to off-set the pre-paid non reimbursed expenses.
MelanieRehovsky
Joined: Jul 09, 2002 Posts: 3
Posted: 2003-01-14 09:56
Do it. We started ours 3 years ago. I too felt lost in all that you have to know to aid your employees in the FSA set up. The first year participation was about 17%, the second it was about 22% and this year we have about 30% participation. People hear how so n so got his lasik paid for via FSA, or suzie q's braces are on FSA, or how john doe took $5k off his taxable income for dependent care expenses. These stories boost participation.
Here are my tips:
1. Get a good administrator, don't try to do it yourself. The IRS doesn't make you file a 5500 anymore for these type plans, but administrators file and verify all the employee's claims, do your top heavy testing and set up your plan document. The cost of for the service will be about $1000 for annual documentation and employee comminucation. The monthly fees per participant are outweighed by FICA match savings.
2. Be careful about how much you let employees put in for medical care. We allow employees to put away up to $2500 per year (it's your call, not the IRS'). We had an employee claim $2500 for lasik in January and quit in March. We ate about $2200 of that and there's nothing you can do about it. It's only happened once but I've heard stories of worse.
3. Understand how ortho works. It's different from other medical expenses because it's pro rated. Your administrator can explain it.
4. Teach teach teach. Employees are uncomfortable using a "use it or lose it" program. The more you can teach them what they'll actually use (ex: braces, lasik, glasses, prescriptions, co-pays) the more confident they'll be that they won't lose money at the end of the year. I tell everyone to be a bit conservative and elect what they know they'll use. What usually happend is someone elects $700 for medical and it's gone by May!
Email me if you want more info. I've been there!
aljh
Joined: Sep 13, 2001 Posts: 447
Posted: 2003-01-15 06:48
Get an outside administrator to process your claims. With the new HIPAA privacy regulations, you would have a major administrative headache trying to comply with the privacy regs for the medical claims. With an third party administrator, you won't see the claims documents and won't have to worry about privacy issues.
Do an employee survey to see who might use it and for how much. You can easily compare the FICA savings vs the admin costs to see what it would cost (or save) the company. I agree with one of the other posters that participation increases for several years after you start a plan. Once employees see how others are benefiting they will jump on the bandwagon in the next year or two.
CandaceChesler
Joined: Jul 11, 2002 Posts: 2
Posted: 2003-01-15 07:50
I am intrigued by the comments made about the company running the risk of an employee submitting a large receipt and then resigning before it's paid back.
With the three plans I have worked with, if an employee submitted a receipt for $1000 in medical expenses, but only had $100 in their account, and $50 taken out each pay period, they would only receive a check for the $100 in their account, and then an additional $50 check from their FSA for the next 18 pay periods. That way, if they resign before having the full $1000 deducted from their pay, the company is not out any cash. I gather this is not the industry standard.
TSTEWART
Joined: Jan 15, 2003 Posts: 1
Posted: 2003-01-15 08:43
We have had a Flex plan for four years now but this is the first year that we have added a "sister" plan - the Qualified Transportation Expense reimbursement. This benefit, very similar to flex, allows employees to defer pre-tax dollars for parking and mass transit expenses. It is worth checking into - our employees seem pleased with it. We use Flores out of Charlotte, NC. They are wonderfully helpful and have all the bells and whistles (direct deposit, no-wait direct deposit, on-line access to accounts, etc.) Their website is www.flores-associates.com if you are interested.
sullivan67
Joined: Sep 13, 2001 Posts: 100
Posted: 2003-01-15 11:40
In response to CandiceChesler's reply, I would be interested to know if this is allowed by the IRS, etc. In all my experience with Flexible Spending Accounts the Company must reimburse the employee up to the full amount of his claim/election amount for the year regardless of the $$ the employee has contributed to date. The FSA is treated like "insurance" whereas an employee has full access to the insurance benefits (or FSA election amount) no matter how much he/she has contributed.
It basically says that a health FSA will not qualify for tax-favored treatment if the effect of the reimbursement arrangement eliminates all, or substantially all, risk of loss to the employer maintaining the plan or other insurer.
Looks like you're running a big risk here.
Now with Dependent Care Arrangements, your process is absolutely correct and allowed.
bobbi
Joined: Jan 17, 2003 Posts: 25
Posted: 2003-01-17 16:40
Don't let the thought of implementing FSA's scare you. Work with your broker to find a way to communicate, design, enroll and administer this type of plan. We are a TPA, so of course I'll tell you to work with us. Our fees are comparable to what I've seen in other replies. But, our clients dig how easy it is to set up and communicate the plan when they work with us. Let me actually direct you to our general website, www.pagroup.us. go to the button on the bottom called flexplus. That will be you to employee guides. These are downloadable and really do a good job explaining what flex is, how it works, and more! See, good answers, no fees. Please contact me if I can answer questions. bobbi63@msn.com
bobbi
Joined: Jan 17, 2003 Posts: 25
Posted: 2003-01-18 09:26
in my earlier reply, I gave a website address that should have been a direct link to an informative site. you can click directly here www.pagroup.us From there, click on the flexplus button at the bottm of the page. Then look for employee guides as one of the button choices. The guides are under remodel right now, but they should be available in a couple days.
bobbi
Joined: Jan 17, 2003 Posts: 25
Posted: 2003-01-18 09:37
[quote]Hi Candace, You're right when you say that this isn't an industry standard. For many years now, the IRS regulations have stipulated that the Health FSA "actlike insurance" with regards to payments of expenses. To state it simply, the entire amount elected for the plan year (for the health fsa only) must be available at any time during the year. If you elect $1000 for a Jan 1 plan year, an incur the expense of $750 in Feb, the plan must reimburse you for that amount, regardless of your current account balance. This could and does put an employer at risk for a loss. There are two "risks" to the plan, therefore, an employee risk of use it or lose it, and the employer risk that an employee could be paid the reimbursement and then terminate prior to having repaid the amount. I rarely see an employer suffer losses, as employee forfeiture amounts offset any losses in most cases.
On 2003-01-15 07:50, CandaceChesler wrote:
I am intrigued by the comments made about the company running the risk of an employee submitting a large receipt and then resigning before it's paid back.
With the three plans I have worked with, if an employee submitted a receipt for $1000 in medical expenses, but only had $100 in their account, and $50 taken out each pay period, they would only receive a check for the $100 in their account, and then an additional $50 check from their FSA for the next 18 pay periods. That way, if they resign before having the full $1000 deducted from their pay, the company is not out any cash. I gather this is not the industry standard.
[/quote]
sdfoley
Joined: Jan 21, 2003 Posts: 1
Posted: 2003-01-21 12:01
flexible spending accounts are the best - AND we started one year ago using the "BENNY" card, which is a swipe card that eliminates (virtually) the use of paper. You can go to www.bennycard.com for more info. the card is linked to mastercard, and works great - we get it thru our TPA, but you have to ask for it...
mjdol
Joined: Sep 13, 2001 Posts: 8
Posted: 2003-01-23 13:33
See if one of your health insurers can take care of this. I use Blue Cross to administer and it is very painless. They also offer that any employee that insures through them will get their reimbursement automatically when a claim with a co-pay is processed. Yes, it is a very hard sell to employees but once they are into it the re-sign every year
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Posted: 2003-01-09 09:54 
