Health Savings Plan and Health Savings Account. Business Rules and Detailed Design Features for 2016

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1 Health Savings Plan and Health Savings Account Business Rules and Detailed Design Features for 2016

2 i Table of Contents 1. Definition of Terms 1A High Deductible Health Plan 2 1B Health Savings Plan (HSP) 2 1C Health Savings Account (HSA) for Active Employees 2 1D Health Savings Account Qualified Medical Expenses 2 1E Eligibility to Contribute to the HSA 3 1F Account Owner 3 1G Health Savings Account Contribution for Active Employees 3 1H Company Contribution to the HSA 3 1I HSP Deductible 3 1J Preventive Care 4 1K Coinsurance 4 1L Prescription Drugs 4 1M Out-of-pocket maximum 4 1N HSP-Eligible Expenses 5 1O Claim Processing 5 1P Plan Year Timely Filing Limit 5 1Q Rollover date 5 1R Overflow of Funds 5 1S Retiree Health Savings Account 5 1T Forfeiture Event 5 1U HSA Account Trustee 6 1V Beneficiary 2. Active HSP: Plan Operations 2A Eligibility for the Company Sponsored Health Savings Account 7

3 2/8/2016 ii 2B Frequency and Amount of HSA Contribution 7 2C Timing of Company HSA Contributions 7 2D HSA Trustee 7 2E HSA Distributions 8 2F Coverage Under an FSA 8 2G Debit Card 9 2H Timing of Rollover to Retiree Reimbursement Account 9 2I Account Contributions for Mid-year New Hires/New Employee Entrants 9 2J Account Contributions for Employees Who Leave HSP plan at Annual 9 Enrollment (UHC term "opt out" of the HSP) 2K Domestic Partners 9 2L Medicare 10 2M Interest on Health Savings Accounts 10 2N IHSP Plan Design 10 2O Tax Consequences of HSA Accounts 10 2P Coordination of Benefits (COB) 11 2Q HSP Offering Eliminated Active HSP: Change in Status 3A Annual Enrollment "opt out" 12 3B Employee Drops Dependent Coverage mid-year 12 3C Dependent Employee Coverage is added mid-year 12 3D Pre-Retirement Termination 12 3E Dependent Elects Individual Coverage under COBRA 12 3F Divorce 13 3G Termination and Rehire: Within same calendar year 13 3H Rehire: In subsequent or future year following voluntary pre-retirement 13 termination 3I Layoff 13 3J Employee Death in Service 13 3K Retirement from The Company 14 3L Paid Leave of Absence 14 3M FMLA 14 3N Paid Military Leave 14 3O Short-Term and Long-Term Disability 14 3P Workers Compensation; Paid Leave 14 3Q Paid Furlough 14 3R Strike 14 3S Unpaid Leave of Absence 14 3T Medicare Primary 14

4 2/8/2016 iii 4. Health Savings Account: Retiree Vesting and Eligibility 4A Vesting at Retirement 15 4B Plan and Coverage Provisions 15 4C Divorced Spouse of Retiree 15 4D Death of Retiree Health Savings Plan: Retirement Plan Operations 5A Access to funds and availability for use 16 5B Eligible Retiree Medical Expenses 16 5C Banking and Trustee 16

5 OSRAM SYLVANIA offers a High Deductible Health Plan called the Health Savings Plan. This plan includes an employee-funded account (called the Health Savings Account) for employees to use for health care needs. It allows employees to save for future medical needs. The plan includes a strong focus on preventive care, paying 100% of preventive care costs received in-network according to the United States Preventive Service Task Force Guidelines and UnitedHealthcare. The attached document provides a definition of terms associated with this plan, and detailed business rules and design features in effect in This document contains information about the Company benefit programs. If any statements in this newsletter are inconsistent with the applicable laws and regulations or official plan documents and contracts, those regulations and document will govern. The Company reserves the right to amend or terminate any plan, at any time, for any reason.

6 1. Definition of Terms 1A Term High Deductible Health Plan (HDHP): IRS definition Definition The definition of an HDHP is established by IRS regulation For 2016, the HDHP must have a minimum annual deductible of at least $1,300 for single and $2,600 for family and a maximum out-ofpocket (including deductible) of $6,450 for single and $12,900 for family coverage. You must have an HSA-qualified HDHP plan to open or contribute to a Health Savings Account in your name. 1B Health Savings Plan (HSP) The company s high deductible health plan (HDHP) is qualified, under IRS regulations, to allow a Health Savings Account (HSA). The company refers to this plan as the HSP (Health Savings Plan) 1C Health Savings Account (HSA) for Active employees A Health Savings Account (HSA) is a tax-exempt trust or custodial account established by an eligible individual. The account is essentially an IRA for health care expenses The HSA is created to pay current and future qualified medical expenses of an eligible individual and his or her spouse and eligible tax dependents The account is owned by the employee Employees can contribute to the account on a pre-tax basis up to the IRS guideline limits (see Rule 1G) The account operates similarly to a savings account, in that all money in the account belongs to the employee as soon as it is deposited. The account is completely portable; there is no use it or lose it rule There are detailed rules on the contribution limits to the account (see following section 1G) Anyone can contribute to another person s Health Savings Account. The tax benefit from such a contribution(s) is gained by the person receiving the contribution, not the person making the contribution There is no time limit by which the money must be spent

7 1D Term Health Savings Account Qualified Medical Expenses Definition The HSA funds can be used to pay for qualified medical expenses as defined under IRC 213(d) for the individual, spouse and tax dependents (as defined for federal income tax purposes) on a tax-free basis IRS publication 502 provides a list of Medical and Dental expenditures that are allowable from a HSA on a tax free basis (see section 2E for more information) Common allowable expenditures from the HSA. These include: Medical, prescription drug, dental and vision expenses Some over-the-counter medications Medicare premiums, deductibles, coinsurance and co-payments Long Term Care medical expenses and premiums COBRA premiums Smoking cessation and weight loss programs Health insurance plan premiums only while receiving federal or state unemployment insurance. Premiums or contributions for employer-sponsored post-65 retiree medical coverage Common expenditures that are not allowable from an HSA include: Health insurance premiums, except while receiving unemployment compensation under any federal or state law Medigap premiums (such as AARP-sponsored plans) Cosmetic services, Nutritional supplements Premiums for life, disability and other accident insurance. Only qualified medical expenses incurred after the employee establishes his/her HSA can be reimbursed tax free. [Example: if the employee enrolls in the HSP on January 1, but does not set up an HSA until May 1, qualified expenses incurred prior to May 1 cannot be reimbursed by the HSA on a tax-free basis.]

8 1E Term Eligibility to contribute to the HSA Definition Individual must be covered by a high deductible health plan (HDHP) on the 1 st day of the month The employee cannot be covered by any non-hdhp (for example, a spouse s plan) However, the individual can be covered by a plan that covers only: Permitted coverage for dental care, vision care, long-term care and accident and disability. Insured non-hdhp permitted insurance i.e. hospital indemnity, workers compensation, property liability, insurance for specified diseases Individual cannot be claimed as a dependent on another person s tax return Individual must not be entitled to Medicare benefits The employee cannot be covered by a healthcare Reimbursement or Flexible Spending Account (that OSRAM calls the FRP), even if it is through a spouses FRP plan because a flexible spending account is considered non-permitted insurance. 1F Account Owner The employee owns the HSA account and any money associated with that account. 1G Health Savings Account Contribution: Statutory Limits The IRS establishes annually the maximum amount that an individual and a family can contribute to the account. For 2016 the maximum amount that can be contributed annually to an HSA is: $3,350 employee-only $6,750 for all other coverage levels Each employee and spouse age 55 and older is eligible to make catch-up contributions. In 2016, each can contribute up to an additional $1,000 If the individual did not have HDHP coverage for the entire year, the employee must pro-rate the catch-up contribution for the

9 Term Definition number of months the employee was eligible (i.e., had HDHP coverage) Individuals who had HDHP coverage for the entire year are entitled to the full catch-up contribution regardless of when their 55 th birthday occurs during the year. If both the employee and the spouse wish to make a catch-up contribution, each spouse must have a separate HSA; only one catch-up contribution can be made to each HSA. 1H Company Contribution to the Health Savings Account The Company will make a contribution to the account on behalf of the employee. For 2016, the amounts are: $250 for employee only $500 for all other coverage levels Note: the account must be opened with Optum Bank. 1I HSP Plan Deductible In the 2016 plan year, this amount is: $1500 for employee only coverage $3000 for all other coverage levels The deductible applies to all covered charges under the plan except for preventive care. (See rule 1J). The deductible can be satisfied by one or all members of the family (sometimes referred to as an aggregate or non-embedded deductible). An example of how this deductible works: if the first family member has an outpatient hospital and surgical charge of $2500 in January, this entire amount will be applied to the family deductible. A second family member refills a maintenance medication in February and the cost of the drug is $100 for a 3 month supply; $100 is also applied to the deductible. A third family member has an ER visit in March for $500. $400 would be applied to the deductible and $100 would be paid at 80%. The $3000 family deductible would then be considered satisfied for the entire family and all future expenses for any family member would be paid at 80%. [Note that UHC uses the term non-embedded for this type of deductible] The HSP Plan has no deductible carry-over provision for amounts satisfied in the last three months of the plan year. The entire deductible must be satisfied every calendar year.

10 Term Definition Deductible applies to in and out-of-network charges combined. Expenses used to satisfy the deductible are also used to satisfy the out-of-pocket maximum. 1J Preventive Care Preventive care received per the United States Preventive Services Task Force Guidelines and has no annual maximum; in-network charges are paid at 100% based on the vendor-negotiated rates. Preventive care received in-network is reimbursed by the Plan and not subject to the deductible nor must it be paid from the Health Savings Account. Preventive care received out-of-network is covered by the Plan but subject to deductible and coinsurance; out-of-network preventive charges may be reimbursed from the Health Savings Account. Eligible preventive care charges are defined according to the United States Preventive Services Task Force Guidelines. The member should refer to the guidelines or contact UHC directly to determine if a service is covered under the preventive care benefit. (Typical diagnostic tests include routine Mammograms and cholesterol screening within the frequency recommended by the preventive care schedule). Dental and vision care services are not considered preventive care under this plan. 1K Coinsurance In-network charges are paid at 80% after the deductible has been satisfied. The employee is responsible for the remaining 20% until the out-of-pocket maximum has been reached. Preventive care services received in-network per the HSP Plan schedule are paid at 100%. 1L Prescription Drugs Prescription drugs are covered as any other expense, subject to the deductible unless they are categorized as preventive under Health Care Reform. Preventive drugs are covered at 100%. When the deductible is satisfied, prescription drug charges are paid according to the coinsurance and considered toward satisfying the out-of-pocket maximum.

11 Term Definition 1M Out-of-pocket maximum For 2016, this amount for in-network and out of network combined expenses is: $2500 for employee only $5000 for all other coverage levels The out-of-pocket is aggregate, which means it can be satisfied by one or all members of the family. An example of how the out-of-pocket works: the first family member has in-patient hospital and surgical expenses and accumulates $4000 of out-of-pocket expenses (which includes meeting the entire family deductible). A second family member has outpatient surgery and has $500 in out-of-pocket expenses; a third family member has charges of $500 for prescription medication that is now paid at 100% because the family out-of-pocket maximum of $5000 is satisfied for the entire family. All future expenses for any family member would be paid at 100%.for the balance of the year. [Note that UHC uses the term nonembedded for this type of out-of-pocket maximum.] The HSP Plan has no out-of-pocket carryover provision for that portion of the out-of-pocket that is satisfied in the last three months of the plan year. The entire out-of-pocket must be satisfied every year. All charges eligible under the HSP apply to satisfying the out-of-pocket maximum including amounts applied to the deductible, hospital copayments and coinsurance. 1N HSP-Eligible Expenses The Choice Plus Health Savings Plan SPD defines covered charges under the HSP. (Note that the definition of expenses eligible to be reimbursed by the Health Savings Account is set by IRS regulation thus is different than the definition of expenses eligible under the Health Savings Plan, which are set by the Company. See rule 2 E.) 1O HSP Claim Processing Claims will be processed and applied to deductible and out-of-pocket maximum in the order in which they are received by the Administrator of the Plan. Application of plan benefits and rules will be based on date of service. All claims must be submitted within 12 months from date of service.

12 1P Term HSA Plan Year Timely Filing Limit Definition Under the Health Savings Account: There is no time limit for when the employee can reimburse him/her self from the Health Savings Account for health care expense. The employee decides whether to spend the funds in the account for medical expenses, and how much to spend, or whether to spend out-of-pocket dollars for current expenses and save the HSA money for future expenses. 1Q HSA Rollover The term rollover has a specific meaning to the IRS. Under the IRS rules established for HSA Accounts, the employee is allowed to withdraw any amount of the HSA funds from the account and there is no limit on what those funds can be spent on. If the funds are not used to pay qualified medical expenses and are returned to the HSA within 60 days, there is no tax or penalty. However if the funds are not used to pay qualified medical expenses and are not returned to the HSA within 60 days, then the employee must pay the taxes due on those funds and a tax penalty. 1R HSA Overflow of funds Overflow of unused balances in the Health Savings Account from one plan year to the next is automatic - fund balances in the HSA remain in the account until they are withdrawn by the employee. There is no use it or lose it rule. 1S Retiree Health Savings Account Not applicable to this plan. Once funds are placed in a Health Savings Account, they are available indefinitely to the employee, including during retirement. 1T HSA Forfeiture Event There are no forfeiture events. The money in the Health Savings Account belongs to the employee and goes with the employee if they terminate from The Company. 1U HSA Account Trustee Optum Bank is the administrator to which payroll-deducted contributions to the HSA Account will be sent. See Rule 2 D for more information. The employee may also select an administrator of his or her choice. 1V Beneficiary Trustees may require that the employee designate a beneficiary for his/her HSA. This way the employee s wishes for disposition of the HSA are known in the event of death. If the employee has a spouse and designates the spouse as the beneficiary, then the account will be

13 Term Definition treated as the spouse s HSA after the employee s death. This means the transfer is not taxable to the spouse and the spouse will be able to continue to take distributions from the account for qualified medical expenses on a tax-advantaged basis, If someone other than a spouse is the beneficiary, the HSA stops being an HSA on the employee s death, and the fair market value of the employee s HSA becomes taxable to his/her beneficiary in the year in which the employee dies. If the employee has not named a beneficiary typically the HSA Trustee s rules of succession will apply.

14 2. Active HSP: Plan Operations 2A Question/Event Eligibility for the Company Sponsored Health Savings Account Rule The employee is eligible to make a contribution to the HSA providing she/he is enrolled in the Choice Plus Health Savings Plan. Refer to rule 1E for additional IRS eligibility rules. 2B Frequency and Amount of HSA Contribution See Rule 1G for maximum HSA contributions. The Company will allow employees to make contributions to the HSA via pre-tax deductions through the Company s Cafeteria Plan, up to the maximum allowed amount. The Company will direct all such contributions to its selected HSA Account trustee bank for allocation of the employee s account. The Company will make contributions to the account as outlined in 1H The IRS regulations allow the account owner to make a contribution, equal to 1/12 of the annual statutory maximum allowed amount for each month in which she/he is enrolled in a qualifying HDHP on the first of the month. For example, an employee with single coverage is entitled to contribute to an HSA for 2016 for each month in 2016 during which she/he is enrolled in the Company HSP. Mid-year new hires: See Rule 2-I. The employee can front load or fully fund the HSA account on the first day his/her health savings account is in effect, but if she/he loses the HSP later in the year (e.g., leaves the Company and does not enroll in another HDHP), the employee will have to withdraw a pro-rated amount of the contribution from the account for the months she/he was not enrolled in a HDHP. The total contributions to the account must be prorated based on the number of full months the employee s qualified high deductible health plan is in effect. The employee may also make contributions to the account at any time by depositing the funds in the HSA Account directly, so long as total contributions to the HSA Account for the year do not exceed the total statutory annual maximum. Keep in mind that OSRAM and the employee will be paying FICA tax on any amount not made through pre-tax payroll deductions.

15 Question/Event Rule No employee may make contributions to an HSA beginning in the month she/he becomes covered for Medicare (refer to 2L). The employee may enroll in family coverage for the HSP and contribute up to the family maximum to the HSA, even if the spouse and children are covered by a non-hdhp plan. However, no employee can make contributions to an HSA if she/he is enrolled in a non-hdhp (e.g. through a spouse s employer). An employee may stop, start or change an HSA payroll election as part of a qualified life status event. An employee may make or revoke an election to contribute to the HSA or to increase or decrease his or her HSA contribution election on a monthly basis, as long as the election change is effective prospectively. Upon retirement, employee payroll contributions to the HSA account cease. A retiree who wishes to contribute to a Health Savings Account Plan must contact Optum Bank directly to make deposits in his/her Health Savings Account, or establish a Health Savings Account with the administrator of his/her choice. If the employee makes excess contributions to the HSA for a year, excess contributions must be included in the employee s gross income. An additional tax penalty also applies. The employee can avoid penalties by withdrawing the excess contribution and the earnings on the excess prior to April 15 of the following year. The employee is responsible for reporting contributions through the income tax-filing process and paying any associated tax or penalties. 2C Timing of Company HSA Contributions Not Applicable 2D HSA Trustee Optum Bank acts as Trustee for employee payroll deductions deposited into individual HSA Accounts. As part of the HSP enrollment process, the employee must sign the Optum Bank trust account agreement if she/he wishes his/her payroll deductions to be deposited with Optum Bank.

16 Question/Event Rule The employee enrolled in the HSP may establish a Health Savings Account with an alternate trustee and deposit funds directly with that trustee. The employee can transfer his/her account between trustees at any time. Optum Bank will communicate directly with the employee with respect to its account banking rules. The Company will pay the banking fees for active employees while they are enrolled in the HSP and who use Optum Bank through payroll deduction as the trustee for their HSA. 2E HSA Distributions The employee can decide whether to spend money from the HSA account or to save the funds for future use Distributions for qualified medical expenses are received from an HSA tax-free. IRS Publication 502 provides a list of allowable expenditures from the HSA. These include: Medical, prescription drug, dental and vision expenses Some over-the-counter medications Medicare premiums, deductibles, coinsurance and copayments Long Term Care medical expenses and premiums COBRA premiums Smoking cessation and weight loss programs Note that health insurance plan premiums can only be reimbursed while receiving state unemployment insurance. Qualified expenses of a spouse or other federal tax dependent are reimbursable even if such individuals are not eligible to establish their own HSA (e.g. a spouse enrolled in Medicare) The expenses allowed in publication 502 are not the same as those considered applicable to the deductible of and covered under The Company s Health Savings Plan (the HSP). Just because an expense can be reimbursed by the Health Savings

17 Question/Event Rule Account does not mean it can be applied toward the deductible or will be covered under the Health Savings Account Plan. Withdrawals from the Health Savings Account to pay for expenses that are not qualified-medical expenses are subject to income tax and a tax penalty. The tax penalty does not apply if the withdrawal is made after the account owner s death, disability or if the account owner is 65 years or older Only the account owner is responsible for substantiating that a distribution is for a qualified medical expense. The account owner must retain records sufficient to show, if required by the IRS, that the distribution was for a qualified medical expense in case she/he is audited. There is no time limit for when the employee can reimburse him/herself for health care expenses. 2F Coverage under an FSA IRS regulations prohibit an employee who participates in a traditional FSA (the Company s FRP or a spouse s FSA) from contributing funds to the Health Savings Account. However, the employee may participate in a limited purpose FSA that covers only vision and dental, and post deductible medical expenses. The Company does not offer this type of FSA plan at this time. 2G Debit Card Optum Bank offers a debit card that can be used at any pointof-service location that accepts MasterCard. The employee may also withdraw money from the account via an ATM (the employee may be responsible for a separate bank fee) Note that it is the employee s responsibility to assure the debit card is used only for qualified medical expenses and to keep appropriate documentation. 2H Timing of Rollover to Retiree Savings Account Not applicable to this product. There is no Retiree Savings Account because the funds in the HSA belong to the employee into retirement. See rule 2L for Medicare exclusion.

18 Question/Event Rule 2I Account Contributions and Distributions for Mid-year New Hires/New Employee Entrants Mid-year hires who enter the Company s HSP plan mid-year may contribute a full-year s contribution amount to an HSA, as long as the employee is HSA-eligible during the last month of the year (i.e., the employee is HSA-eligible on December 1 st ). However they must also remain enrolled in the HSA plan for the entire subsequent year. In no event can an individual contribute more than the annual HSA maximum allowed. Refer to IRS Instructions for Form 8889 for a calculation worksheet. HSP benefit plan features are not pro-rated. Mid-year new entrants do not receive prorated deductible or out-of-pocket limits. If the mid-year hire has coverage under a health FRP (e.g., from a previous job or a spouse s employer), then the new hire is ineligible to contribute to an HSA. An individual with HDHP coverage becomes eligible for a HSA, and can make contributions to the HSA beginning the first day of the month on or after his HDHP coverage is effective. Medical expenses can be reimbursed from an HSA only if the expenses were incurred after the HSA was established. Thus expenses incurred between the date the HSP coverage became effective and the date the HSA became effective are not reimbursable under the HSA. 2 J Account Contributions if employee leaves HSP at Annual Enrollment (UHC term: opt-out of the HSP) At annual enrollment, if the employee leaves (opts out of) the HSA Plan (e.g., goes to another medical plan), the employee retains ownership of all amounts in the Health Savings Account but cannot contribute additional funds to the account. The HSA funds can be withdrawn tax-free to reimburse for any qualified medical expense; or for any other expense, subject to income taxes and a tax penalty. The employee can use funds from the Health Savings Account to reimburse for expenses from a previous year only if the expenses were incurred after the HSA was established. Funds can be used to reimburse expenses incurred under a different health plan, such as co-payments, but not health insurance premiums (like any other ineligible expense, the employee can withdraw funds for this or any other expense but will be subject to income taxes on the withdrawal and the

19 Question/Event Rule 10% tax penalty.) 2K Domestic Partners The Company permits eligible domestic partners to be covered under the Company-sponsored HSP However, a domestic partner is not considered a dependent for the purpose of a Health Savings Account unless he or she meets the definition of a federal tax dependent. An employee may not use funds in his/her HSA to pay for outof-pocket medical expenses of the non-tax-dependent domestic partner without incurring income tax and an additional tax penalty Note: Under current HSA regulations, an employee and his/her non-federal-tax domestic partner who is covered under a HDHP plan with family coverage may each contribute up to the maximum statutory HSA annual contribution to separate HSAs. The Company will accept payroll deduction contributions to the HSA only for the employee and not for the domestic partner For example, under OSRAM s HSP plan, if the employee covers the domestic partner with family HSP coverage, the domestic partner may establish an HSA directly with the trustee of his/her choosing and use those funds to reimburse his/her own eligible expenses. Thus, the employee could avoid the income tax and tax penalty that would be incurred if the employee s HSA reimbursed the domestic partner s expenses.]

20 Question/Event Rule 2L Medicare No new contributions to the Health Savings Account can be made beginning in the month that an individual becomes covered under Medicare. Note that if an employee chooses to receive Social Security payments, he/she is automatically enrolled in Medicare Part A starting with the first day of the month he/she turns age 65. Therefore this employee is not eligible to contribute to an HSA after that time, even if the employee remains in the HSP. Employees and retirees covered under Medicare can use funds in the Health Savings Account to pay for expenses as defined IRS publication 502, including: Medical expenses not covered by Medicare Medicare deductibles and other Medicare out-of-pocket expenses Long-Term Care expenses Contributions for the Company-sponsored post-65 retiree medical Medicare premiums, but not Medigap insurance policy premiums. An employee not enrolled in Medicare may establish and contribute to an HSA even if the employee has a spouse who is enrolled in Medicare. If the employee is enrolled in a family HDHP, then the employee can make a family-level contribution to the HSA despite the fact that the spouse in entitled to Medicare. The spouse s Medicare entitlement is irrelevant to the employee s HSA contribution limit. 2M Interest on Health Savings Accounts The trustee of the account will determine the interest and investment options for the account. 2N HSP Plan Design Refer to Choice Plus Health Savings Plan SPD for all other plan features such as deductibles, coinsurance, co-payments and specific coverage maximums under the plan. 2O Tax Consequences of HSA Accounts The Company does not provide tax advice or guidance to individual employees. The employee should refer to his or

21 Question/Event Rule her tax counsel for complete guidance with respect to the tax consequences of HSA Accounts. The website also provides information on Health Savings Accounts; Refer to IRS publication 969 The Trustee is responsible for providing the account owner with the following 2016 tax forms by May 31, 2017 IRS Form 5498-SA for contributions IRS Form 1099-SA for distributions (usually received mid- February) Amounts contributed to the HSA from payroll are considered to have come from a Cafeteria Plan and are therefore considered employer contributions. This applies even to contributions the employee elected to have deducted from his or her paycheck and directed to an HSA on his or her behalf. An employee s pre-tax payroll contributions to a HSA account, and any employer contributions to that account will be reported on the employee s W-2 form in box 12 For tax purposes, employee contributions are only the monies the employee contributed directly to the HSA other than through payroll. The employee with a HSA must complete and file Form 8889 with his or her Form 1040, as part of his or her annual tax filing. Form 8889 is used to report HSA contributions, calculate the appropriate HSA deduction, report distributions from HSAs and determine the amount to include in income, and additional tax owed, if the employee is not an eligible individual or HAS money was used to pay expenses other than qualified medical expenses.. The IRS Instructions for Form 8889 has complete information on how to figure the HSA deduction to which the employee is entitled. Some states apply state income taxes to HSA contributions and interest earned. For details the employee should consult a tax advisor. Information is also available on 2P Coordination of Benefits (COB) The Health Savings Plan has non-duplication COB. Because there has been no official guidance on COB with respect to

22 Question/Event Rule Health Savings Plans, this COB option will preclude the possibility of the employee receiving coverage through COB for charges that were used to satisfy the minimum qualifying high deductible. COB non-duplication approach when the HSP plan pays as secondary, total payable benefits will not exceed the normal benefits payable under the Company HSP. An employee who elects the HSP cannot be covered under any other health insurance plan that reimburses for health expenses unless it is another HSA-qualified plan. If the employee is covered under two HSA-qualified health plans, it is a violation of COB rules to be paid by each plan for the same expense. The employee s dependents can be covered by both the Company sponsored HSP plan and another plan through a spouse s employer, including a non-hdhp plan. 2Q HSP Offering Eliminated As with all Company plans, the Company reserves the right to amend or terminate the plan. The money in the HSA belongs to the employee. The Company will no longer permit payroll deductions in to the HSA as of the date the HSP offering is terminated. The employee owns the funds in the account. No additional contributions through payroll deduction will be allowed. Employees will be responsible for establishing a banking relationship directly with their HSA trustee.

23 3. Active Employees in the HSP: Change in Status 3A Question/Event Annual Enrollment opt out (leaves HSP Plan) Rule At annual enrollment, if the employee leaves (opts out) of the HSA (e.g., goes to another medical plan), the employee retains ownership of all amounts in the HSA but cannot contribute additional funds to the account. The funds in the HSA may be withdrawn tax-free to reimburse for any qualified medical expense, but if withdrawn for an expense that is not allowed, the amount withdrawn is subject to income taxes and a tax penalty. The employee may use funds from the Health Savings Account to reimburse expenses incurred after the employee established the HSA. (Expenses incurred prior to the HSA being established are not eligible even if they are otherwise a qualified medical expense.) Funds can be used for tax-free reimbursement of expenses incurred under a different health plan, such as co-payments under an HMO or PPO, but not health insurance premiums (but like any other ineligible expense, the employee can withdraw funds to pay for premiums and will be subject to income taxes on the withdrawal and the tax penalty. The money in the HSA as of the termination date belongs to the employee The employee will become responsible for the relationship with Optum Bank, including any fees, or for transferring to a new trustee. 3B Employee has qualifying event and drops Dependent coverage mid-year (e.g., employee gets divorced or spouse gets job and the employee decides to drop from Family coverage to Employee-only coverage) In the event of a reduction in coverage tier, the new coverage tier becomes effective on the date of the qualifying event. The employee s total annual contributions must be prorated based on the number of months of coverage in each tier. For example, if the employee had family coverage for 8 months and single coverage for 4 months, the employee s total eligible HSA contribution would be 8 X the family monthly account contribution maximum plus 4X the single monthly account contribution maximum. Refer to IRS Instructions for Form 8889 for a calculation worksheet. The employee is responsible for ensuring that HSA contributions through payroll deduction are actually made, to ensure that any excess contributions to the HSA are reported to the IRS, and to pay any associated income tax or penalty on any excess [for example, an excess contribution could occur if the employee front-loaded the

24 Question/Event Rule annual maximum family account contribution in January, then was divorced and had no eligible dependents later in the year] The entire HSA will remain available to the employee. 3C Dependent Coverage is added mid-year (e.g., employee gets married and goes from Employee Only coverage to Employee + 1 coverage) For change in coverage tier, benefits change to new coverage as soon as change is made. The employee s total annual contributions must be prorated based on the number of months of coverage in each tier. For example, if the employee had Employee Only coverage for 5 months and Family coverage for 7 months, the employee s total eligible HSA contribution would be 5 X the single monthly account contribution maximum plus 7X the family monthly account contribution maximum. Refer to IRS Instructions for Form 8889 for a calculation worksheet. 3D Pre-Retirement Termination The money in the HSA belongs to the employee. The HSP is subject to COBRA continuation, but the Health Savings Account is not subject to COBRA. If the employee continues coverage in the HSP through COBRA, the coverage will be considered continuous for the purposes of the employee s eligibility to fund an HSA. As of the date of termination, the employee will become responsible for the relationship with Optum Bank, including any fees, or for transferring to a new trustee. 3E Dependent Terminates This is a COBRA qualifying event for the dependent. The dependent may elect individual HSP coverage under COBRA. However, the Health Savings Account is not subject to COBRA The HSA funds belong to the employee. The employee may use the HSA funds to reimburse the qualifying expenses of the terminated dependent if she/he remains a tax dependent. 3F Divorce This is a COBRA qualifying event. The HSP is subject to COBRA continuation. However the Health Savings Account is not subject to COBRA. The rights to the HSA belong to the employee.

25 3G Question/Event Termination and rehire within same calendar year Rule The money in the HSA as of the termination date belongs to the employee If the employee maintains participation in the HSP through COBRA, the employee may continue to contribute to the HSA [on a direct basis] while on COBRA. When the employee is rehired, the employee may resume payroll deductions for HSA contributions. If the employee does not maintain participation in the HSP or another qualified HDHP, she/he may not continue to contribute to the HSA. After the employee is rehired, she/he is considered a new enrollee for the purposes of the HSP, and thus can make contributions up to the statutory annual maximum so long as the employee is HSA eligible during the last month of the year and maintains HSP coverage through the following year. In no event may total annual contributions to the account exceed the statutory maximum. Refer to IRS Instructions for Form 8889 for a calculation worksheet. 3H Rehire in next or future year following voluntary preretirement termination The money in the HSA belongs to the employee. If the employee maintains participation in the HSP through COBRA, the employee may continue to contribute to the HSA [on a direct basis] while on COBRA. When the employee is rehired, the employee may resume payroll deductions for HSA contributions. If the employee does not maintain participation in the HSP or another qualified HDHP, she/he may not contribute to the HSA. However, after the employee is rehired, she/he is considered a new enrollee for the purposes of the HSP, and thus can make contributions up to the statutory annual maximum so long as the employee is HSA eligible during the last month of the year and maintains HDHP coverage for the entire subsequent year. In no event may total annual contributions to the account exceed the statutory maximum. 3I Layoff The money in the HSA belongs to the employee. If The Company layoff agreement allows for continued medical coverage, the employee will continue to be treated as active employee for the time specified by the agreement. After that period,

26 Question/Event Rule the employee will be considered a pre-retirement termination (see rule 3D) If the Company layoff agreement terminates coverage, employee will be considered a pre-retirement termination (see rule 3D) If the employee continues coverage under COBRA, the coverage will be considered continuous for the purposes of the employee s eligibility to fund the HSA. The employee will become responsible for the relationship with Optum Bank, including any fees, or for transferring to a new trustee. If the employee is laid-off but not recalled within the calendar year of layoff, the employee is treated as new hire (even though medical coverage may have been continuous if the employee elected COBRA). 3J Employee Death in Service Upon the account owner s death, the HSA becomes the spouse s property unless there is another beneficiary. If the beneficiary is the account owner s estate, the fair market value of the account as of the owner s death date is taxable on the account owner s final return. 3K Retirement from the Company Subject to retiree eligibility provisions. The HSP Account belongs to the retiree. Medicare-eligible retirees are not allowed to stay in the HSP plan and must transfer to another plan under the retiree medical plan. 3L Paid Leave of Absence Treat as an Active employee. 3M FMLA Treat as an Active employee. 3N Paid Military Leave Treat as an Active employee. 3O Short-Term & Long-Term Disability Treat as an Active employee unless employee is enrolled in Medicare then employee is no longer eligible for the HSP plan. 3P Workers Compensation; Paid Leave Treat as an Active employee. 3Q Paid Furlough Treat as an Active employee.

27 Question/Event Rule 3R Strike Goes directly to COBRA. Coverage is reinstated [not retroactively] upon return to work, even if the strike spans a calendar year. Funds in the HSA can be used to pay the COBRA premiums that apply during a strike. 3S Unpaid Leave of Absence Treat as Pre-Retirement Termination COBRA rules apply. 3T Medicare Employees who are enrolled in Medicare or Medicaid cannot open or contribute to an HSA. Member will be offered the Choice Plus PPO Plan effective the date Medicare is primary. Employees, who are Medicare-eligible but not enrolled in Medicare, can open or contribute to an HSA if they are enrolled in a qualified HDHP. Split family : An employee not enrolled in Medicare may establish and contribute to an HSA even if the employee has a spouse who is enrolled in Medicare. If the employee is enrolled in a family HDHP, then the employee can make a family-level contribution to the HSA despite the fact that the spouse in entitled to Medicare; the spouse s Medicare entitlement is irrelevant to the employee s HSA contribution limit. Notes: If an individual is receiving Social Security benefits he or she is automatically enrolled in Medicare Part A and would be disqualified from contributing to an HSA. However, a person can choose to defer Social Security to a later date and also defer enrolling in Medicare, thus remaining eligible to contribute to an HSA. (Alternatively, a person may choose to enroll in Medicare but still defer Social Security benefits to a later date.) Note that the special enrollment period for Part B lasts only 8 months after employment ends and runs whether or not the employee elects COBRA. So if the employee waits until COBRA is over, the special enrollment period may also be over, and a Medicare Part B penalty will apply. Employees who are post-65 are strongly urged to contact their local Social Security office.

28 4. Health Savings Account: Retiree Vesting and Eligibility Question/Event Definition/Rule 4A Vesting at retirement Immediate. The money in the HSA belongs to the account owner. 4B Plan and Coverage Provisions The retiree is eligible for distributions from the HSA under the same rules as active employees. 4D Divorced Spouse of Retiree The rights to the HSA Account belong to the retiree. 4E Death of Retiree Upon the account owner s death, the HSA becomes the spouse s property unless there is another beneficiary. If the beneficiary is the account owner s estate, the fair market value of the account as of the owner s death date is taxable on the account owner s final return.

29 5. HSP Retirement: Plan Operations 5A Question/Event Access to funds and availability for use Definition/Rule The money in the HSA belongs to the account owner. Funds can be accessed to reimburse for eligible charges at any time. 5B Medicare-eligible Retiree Medical Expenses Allowable expenses include all Section 213(d) expenses, as published in IRS Publication 502 and premiums for an the Company sponsored plan and/or for another plan (including Medicare Part B, C, and D premiums), but not Medigap premiums. Retirees who are Medicare-eligible can use the funds in the HSA to pay for the Company-sponsored post-65 retiree medical plan. The account can be used to reimburse retirees for qualified medical expenses. 5C Banking and Trustee As of the retirement date, the retiree will become responsible for the relationship with Optum Bank, including any fees, or for transferring to a new trustee.

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