Answers to Frequently Asked Flex Benefits Questions
- What is a Flexible Benefit Plan?
A Flexible Benefit Plan, also known as a Section 125 Plan, or a Cafeteria Plan, gives employees the ability to purchase certain qualified benefits with pre-tax dollars. Essentially, they would exchange taxable compensation for non-taxable benefits. These "tax-free benefits" can include medical insurance premiums, reimbursement of out-of-pocket medical expenses, and reimbursement of work-related dependent daycare expenses. Flexible Benefit Plans are so popular because they offer employees a choice of benefit options and because they allow both employees and employers to save tax dollars. ▲ Back to top
- How does a Flexible Benefit Plan benefit the employer?
Hard Dollar Savings: Every dollar employees defer into the Flex Plan is withheld from their pay before any taxes are calculated. As the employer, you will save your portion of social security tax, Medicare, and any other taxes your state requires you to contribute on behalf of your employees. In addition, in most states your Workers Compensation Premiums will be calculated on your employees’ “after-flex” salary. ▲ Back to top
Soft Dollar Savings: By implementing a Flexible Benefit Plan you will be offering employees the opportunity to keep some of what would have otherwise disappeared in taxes. It is like giving your employees a "raise" that does not cost you a penny in cash or payroll taxes. ▲ Back to top
Recruiting and Retaining Talented Professionals: Flexible Benefit Plan can be a valuable recruiting tool. Once exposed to the value and versatility of a Flexible Benefit Plan, many employees have told us they would not want to be without one. It can make the difference when you are trying to attract talented, committed professionals to your company. A Flex Plan will also increase your current employees' satisfaction with their benefits package, which enhances your ability to retain your valuable staff members. ▲ Back to top
- How does a Flexible Benefit Plan benefit the employee?
A Flexible Benefit Plan allows employees to convert many expenses, which were previously not deductible, into expenses that can be paid for with pre-tax dollars. They can do this by making pre-tax contributions to the Flexible Benefit Plan. These contributions reduce their gross or taxable income so they pay less in taxes. ▲ Back to top
When an employee elects to participate in a Flexible Benefit Plan they will save:
- FICA withholding Tax (Social Security & Medicare)
- Federal Withholding tax
- State withholding tax (not applicable in some states)
Premium Account: Signing up for the Premium Account allows employees to have their portion of company sponsored insurance premiums withheld before taxes are calculated. This option will increase their take-home pay with the stroke of a pen.
Medical Reimbursement Account: The Medical Reimbursement Account gives employees the opportunity to save taxes on their family’s out-of-pocket health care costs. This may include medical services that are not covered by traditional insurance at all (chiropractic or acupuncture treatments for example).
Dependent Daycare Account: The Dependent Daycare Reimbursement Account allows employees to use tax-free dollars to pay their daycare providers. In most cases, the employee will experience greater tax savings through this type of reimbursement account than if they would use the Daycare Tax Credit on their tax return. ▲ Back to top
- What can a Medical Reimbursement Account be used for?
The Medical Reimbursement Account enables employees to pay for expenses that are not covered by insured medical plan(s), with pre-tax dollars. This account allows employees to be reimbursed for out-of-pocket medical, dental, and vision expenses as well as over-the-counter medications. Reimbursable expenses are similar to those normally deductible on a federal income tax return (without regard to the 7.5% of adjusted gross income limitation).
They include, for example, expenses incurred for:
- Deductibles and Office Visit Co-payments.
- Prescription medications, vaccines, birth control, and infertility treatments.
- Medical doctors, dentists, eye doctors, chiropractors, osteopaths, podiatrists, psychiatrists, psychologists, physical therapists, acupuncturists and psychoanalysts.
- Medical examinations, X-rays, laboratory services, and insulin treatments.
- Hospital care, clinic costs, and lab fees.
- Medical treatment at a center for substance abuse.
- Medical aids such as hearing aids (and batteries), dentures, prescription eyeglasses and/or contact lenses, braces, orthopedic shoes, etc.
- Over-the-counter drugs and medications used for the treatment of a medical condition, injury, or illness. ▲ Back to top
- What can a Dependent Daycare Reimbursement Account be used for?
The Dependent Daycare Reimbursement Account enables employees to pay for out-of-pocket, work-related dependent daycare cost with pre-tax dollars. In some cases, this account may be used for adult daycare (the cost of daytime supervision of an adult child, spouse, or dependent parent who is incapable of caring for themselves). Daycare services may be provided by a friend or family member and still be eligible for reimbursement through the plan. ▲ Back to top
- How can I control health care costs for my company and my employees?
These plans are called “Flexible Benefit Plan” because you can adjust your plan design to meet your needs. For some that means focusing on reducing costs, others may want to add choices that augment existing insured plans and create more comprehensive coverage. Some employers want to partially fund these accounts to help cover expenses that aren’t otherwise being addressed by the rest of the benefits package. Often the combination of moving to a health plan with higher out-of-pocket costs, and subsidizing the Medical Reimbursement Account, can result in lower over-all costs without reducing coverage. ▲ Back to top
- What is a Pre-Tax Commuter Expense Reimbursement Program?
Pre-Tax Commuter Expense Reimbursement Programs give employees the ability to pay for qualified travel expenses with pre-tax dollars. This means you can offer employees the opportunity to set aside a portion of their salary, before taxes are calculated, and use that money to pay for work related parking and public transportation. The amount set aside is completely exempt from Federal income taxes and Social Security (FICA), as well as California income and SDI taxes. This generates savings to both you, as the employer, and to your employees
Not only are these plans a competitive way to cope with the cost of getting employees to and from their jobs, the savings generated for the employer will often pay for the administration. That makes this a virtually FREE BENEFIT! ▲ Back to top
- What is COBRA?
The Consolidated Omnibus Budget Reconciliation act of 1985 (COBRA) requires employers with group health plans to give employees the opportunity to continue their group health care coverage under the employer’s plan if their coverage otherwise would cease due to termination, lay off, or other changes in employment status.
The Department of Labor estimates that 90% of employers are out of compliance with COBRA regulations. Many do not realize that their COBRA responsibilities start the day an employee enrolls in group health coverage, not the day they loose that coverage. ▲ Back to top
- Why must I comply with Federal COBRA?
COBRA administration requires adhering to employee communication requirements and stringent timelines. Inefficient management of these timelines exposes your business to additional healthcare claims, which can affect your future premium rates and negotiations.
Penalties for failing to comply can be devastating:
- Lawsuits from former employees
- Unintended liability for medical claims
- IRS excise taxes, and ERISA penalties that cost employers millions of dollars every year
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- How does Benefit Dynamics help me optimize my Plan Options and ensure my compliance?
By providing you with trained professionals who specialize in this type of employee benefit. Our first priority, as an independent consulting firm, is to help you find creative solutions so you can meet your objectives in a cost-efficient manner. Our second priority is to provide you with personalized service and plan design consulting that meets the highest standard of compliance.
We also pride ourselves on our superior ability to effectively communicate these benefits to your employees and outstanding customer service. This, in turn, leads to higher employee participation and generates greater satisfaction with their benefit options. ▲ Back to top
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