ADDENDUM 1. The following constitutes Addendum #1 to the above referenced solicitation. This addendum is divided into the following parts:

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1 State of New Jersey DEPARTMENT OF THE TREASURY JON S. CORZINE DIVISION OF PURCHASE AND PROPERTY BRADLEY I. ABELOW Governor PURCHASE BUREAU State Treasurer P.O. BOX 230 TRENTON, NEW JERSEY To: All Interested Bidders Re: RFP #: 07-X Administrative Services for Section 125 Flexible Spending Account Bid Due Date: April 4, 2007 (2:00 p.m.) ADDENDUM 1 The following constitutes Addendum #1 to the above referenced solicitation. This addendum is divided into the following parts: Part 1: Answers to questions. Part 2: Additions, deletions, clarifications and modifications to the RFP It is the bidder s responsibility to ensure that all changes are incorporated into the original RFP. All other instructions, terms and conditions of the RFP shall remain the same. New Jersey Is An Equal Opportunity Employer Printed on Recycled Paper and Recyclable

2 PART 1 Administrative Services for Section 125 Flexible Spending Account Bid Number 07-X Answers to Questions c Page # RFP Section Reference 1. General General Question Will there be a questionnaire attached to this RFP? Please confirm that the expected vendor is only required to attend one day of onsite open enrollment meetings. How are the 7,000 copies of the SPD distributed? The RFP states that the proposing firm should not provide a URL for its website. Is this correct? Does the review committee plan on reviewing each vendor's website? Per the current contract, is the administrative fee still $3.00 per participant per month? What is the administrative fee for the debit card? Are there any additional annual or recurring fees? Answer There is no questionnaire attached to this RFP. Information that must be included in your bid response is provided under Section 4 of the RFP, Bid Proposal Preparation and Submission". As stated under Section 3.2.1, at least one on-site enrollment meeting is required each year with the Contract Manager. However, the contractor shall be required to attend additional on-site meetings for the initial plan year, as deemed necessary by the Contract Manager. No more than three on-site visits with the State Contract Manager will be required for the initial plan year. In addition, the contractor must be available to attend one on-site visit at each participating employer s 15 worksites for the initial plan year. Distribution of the FSA booklet is the responsibility of the participating employers. That is correct. As per section 4.1, URLs are not to be included in the proposals for the reasons listed in the above referenced section. However, this pertains mostly to document and other resources that may change regularly, i.e. financials, ownership, etc. During the evaluation process, responsive bidders may be asked to provide the committee with access to their website. The administrative fee is currently $3.00 per participant per month. This is an all-inclusive fee. There are no additional fees for the debit cards or other required services. 2

3 / With regards to the local business subcontractor requirement; if the awarded vendor makes a valid effort to award portions of the contract to New Jersey based companies, but cannot do so due to cost or logistical reasons, is this ok or will the contract be voided? Please provide additional clarification on the term "subcontractor." If the proposing firm can provide all services without outsourcing and/or subcontracting portions of the contract and, therefore, reduce the administrative fees for the State, is subcontracting still required? Please provide a breakdown on how each payroll center is transferring the deductions to the contractor (i.e. how many are providing these funds via check, via wire transfer and via ACH)? Will the State cover any disbursements in excess of the deductions to that point in time? Please clarify; does the monthly administrative fee currently include the FSA debit card? Ref.: Section Small Business Set- Aside Contracts, Page 20 and Subcontractor(s), Page 24 - Are these new requirements? If not, please describe how the incumbent vendor meets these requirements. Ref: Section 3.2.5, End of Year Services, Page 16: Will the current Administrator be responsible for the 2007 Plan Year Grace Period claims (through 3/15/2008) and 2007 Plan Year run-out claims (through 4/30/2008)? Section clearly states that all bidders must submit a Notice of Intent to Subcontract Form and indicate whether it intents to use a subcontractor. Although the State of New Jersey has goals to encourage small business growth in New Jersey, a subcontract is not required; however, a good faith effort is. Yes, this contract is set aside for small business subcontracting goals; therefore, it is incumbent upon the bidder to make a good faith effort to contract services related to this contract to a New Jersey based small business. Subcontracting is a consideration by the Evaluation Committee during bid review. Seven (7) employers send payments by wire-transfer; six (6) employers mail checks to the contractor and two (2) employers send payroll deductions via ACH. The State will cover any shortage in the aggregate; however, since the plan s inception in 1996, this situation has never occurred. The administrative fee must be allinclusive, i.e. it must include all required services including the FSA debit card. Bidders are required to submit the Notice of Intent to Subcontract form pursuant to NJAC 17:13-4 and Executive Order 71, which was established under former Governor McGreevey. To meet these requirements, bidders may call the number at the bottom of page 5 of the RFP, which is the number to the Office of Small Business Services. Yes. The current contractor will be responsible for closing out the 2007 plan year. 3

4 Ref: Section 3.2.4, Electronic File Transfer Requirements, Page 16: Is the State using the "enterprise" version of Connect Direct Secure+ option? Ref: Section 3.1.3, "Claims Processing Services", Page 15: Regarding payment of claims on a weekly basis, would there be any objection to paying claims on a daily basis? Ref: Section , Claims Processing Services, Page 15: Will the selected vendor be interfacing with each of these separate employers for payroll deduction and enrollment data or will the vendor interface with only one payroll system? If the vendor will interface with each employer's payroll center, please provide the total number of payroll deduction cycles (12, 24, 26, 52, etc.) that will be applicable to each of the listed employers. This total should reflect the overall total of payroll deduction data files that will need to be exchanged with the successful vendor. If the vendor will interface with only one payroll center, please provide the total number of payroll deduction cycles (12, 24, 26, 52, etc.) that will be applicable to this one payroll center. This total should reflect the overall total of payroll deduction data files that will need to be exchanged with the successful vendor. (Page 13): Can the State provide copies of all of the written enrollment materials referenced in this section (newsletter, pamphlet, booklet, election form, Change in Status form, Confirmation Statement, SPD, announcement letter), perhaps at the prebid conference? We are unaware of an "enterprise" version of Connect Direct Secure+ option. OIT support was unclear also as to what it is. We have no objections to more frequent payments; however, it is not a requirement of this RFP. The selected vendor will interface with each of the 15 participating employers. For the State s Centralized Payroll and 8 of the other employers, there are 26 bi-weekly payroll deduction cycles in a given plan year. Six employers make two deductions per month for a total of 24 deductions per year. The requested information is provided below as Attachment 1. 4

5 (Page 13): Can the State elaborate on the number of meetings, (both staff training and open enrollment), the number of days and the meeting locations? (Page 14): What percentage of the State's employees enroll in an FSA online? Via IVR? Via paper? (Page 14): Does the State want the electronic enrollment methods to be provided year 'round (i.e., for use by new hires or Changes in Status? Ref: Section 1.2,, Background, Page 7: For reporting of yearly dependent care in Box 10 of the W-2 form, does the State report amounts deducted (through payroll salary reduction) for the year, or is the reporting for the actual cash amount reimbursed during the year? Ref: Section 1.2, Background, Page 6: Is the incumbent administrator the processor of group health claims? Ref: Section 1.2, Background, Page 6: Is there an employer/state contribution for employees to use for their Section 125 plan benefits? If so, what is the annual amount? Ref: Section 1.1, Purpose and Intent, Page 6: Why was this RFP issued? (For example, is the contract expiration date approaching? 5 The bidder should anticipate two to three on-site meetings with the Contract Manager to organize the plan year 2008 open enrollment. Additional conference call meetings should also be anticipated. In addition, we require that the contractor make one on-site meeting with each of the participating employers to establish working procedures. This applies in the initial plan year only. After the first year, only one on-site meeting with the State Contract Manager is required. Employee educational sessions are on request. During the open enrollment for plan year 2007, the contractor participated in 4 on-site training sessions. ( Given that the program has been in place for 11 years, we anticipate only a minimal number of requests for employee/employer training.) For plan year 2008 and beyond, we anticipate between 5 to 10 training requests per year. For plan year 2007, approximately 30% of participants enrolled online; 50% enroll using the IVR; and 20% enrolled by filing a paper enrollment form. Although not a requirement of this RFP, we would be receptive to considering year-round electronic enrollments. The amounts reported in Box 10 of the W-2 forms are based on the payroll deduction amounts. The incumbent administrator, Horizon Blue Cross and Blue Shield, also administers the State s traditional health insurance plan and the State s point-of-service (New Jersey Plus) health plan. There is no employer/state contributions to the FSA plans. The current contract expires 12/31/07 and, by state law, the contract must be re-bid. Our primary goal is to

6 Is the State seeking enhanced or improved services?) Please elaborate. maintain the same level of services that are currently being provided. PART 2 Administrative Services for Section 125 Flexible Spending Account Bid Number 07-X Additional Information # Page # RFP Section Reference Additions, Deletions, Clarifications and Modifications 6

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10 FN Fact Sheet #44 A PUBLICATION OF THE NEW JERSEY DIVISION OF PENSIONS AND BENEFITS Tax$ave for State Employees Tax$ave, a benefit program available under Section 125 of the Federal Internal Revenue Code, allows eligible employees to set aside before-tax dollars to pay for certain medical, dental, and dependent care expenses, thereby avoiding federal taxes and saving money. An eligible employee is any employee of the State, a State college or university, or other State agency who is eligible to participate in the State Health Benefits Program except those part-time employees made eligible under Chapter 172, P.L Tax$ave consists of three separate component plans, and an eligible employee may elect to participate in any combination all, some, or none of the plans. The three components of Tax$ave are: The Premium Option Plan (POP) allows employees to pay any State Health Benefits Program medical and/or dental premiums they have with before-tax dollars; The Unreimbursed Medical Spending Account Plan (UMSA) allows employees to set aside money to pay for qualified medical and dental expenses not paid by any group benefits plan under which they or their dependents are covered; and The Dependent Care Spending Account Plan (DCSA) allows an employee to set aside funds to pay for anticipated expenses related to dependent care required to permit the employee and spouse to work. UMSA and DCSA are also known as Flexible Spending Accounts (FSA's). Note: Tax savings on commuter mass transit and parking expenses are available as a separate benefit to State employees under the Commuter Tax$ave Program. See Fact Sheet #67, Commuter Tax$ave Program, for details. PREMIUM OPTION PLAN If you are an employee eligible to participate in the State Health Benefits Program (SHBP), you can save tax dollars by participating in the Premium Option Plan (POP). The plan allows you to pay any of your SHBP medical and/or dental premiums with beforetax dollars. The premiums you already pay for your coverage are deducted from each paycheck before federal income and FICA (Social Security and Medicare) taxes are calculated, thereby saving money on taxes withheld. The amount of your savings depends on a variety of factors, such as the amount of the premiums and your income tax filing status. If you are making a premium contribution for medical and/or dental coverage, you are automatically enrolled in POP and will pay less taxes. If you choose to decline enrollment in the POP, each year you must sign and return a Declination of POP form to your benefits administrator. The plan runs on a calendaryear basis. POP will increase your take-home pay; it does not change the medical and/or dental premiums you pay. EFFECT OF POP ON SHBP RULES AND PROCEDURES The Internal Revenue Service (IRS) strictly regulates the plan because of the tax advantages provided under the POP. IRS rules require that for an employee covered by the POP, payroll deductions for medical and dental plan benefits remain the same for the entire plan year. Therefore, no coverage level changes can be made which result in a change in the amount of your medical and/or dental plan deduction unless a "qualifying event" occurs. If a qualifying event does occur, you may make a change by submitting a completed medical and/or dental plan application to your employer within 60 days of the event or during the annual Open Enrollment period. Qualifying Events Plan elections in effect at the beginning of the plan year will continue throughout the calendar year or upon the occurrence of a "qualifying event." The fol- September 2006 Page 1 Fact Sheet #44

11 Fact Sheet #44 A PUBLICATION OF THE NEW JERSEY DIVISION OF PENSIONS AND BENEFITS FN lowing is a list of what is considered a qualifying event: A marriage (you may enroll your spouse and any other eligible dependents). Addition of an eligible dependent due to birth, adoption, or legal guardianship. A change in family status involving the loss of eligibility of a family member (separation, divorce, death; child marries or no longer lives at home). A move outside an HMO service area. The termination of your employment for any reason, including retirement. An approved unpaid leave of absence (you are entitled to elect the POP upon return to active employment). A change in your spouse's or eligible dependent's employment status resulting in their loss of medical and/or dental coverage. A child under the age of 23 has divorced and moves back into your household and is dependent upon you for support and maintenance. Such other events that may be determined to be appropriate and in accordance with applicable IRS regulations. UNREIMBURSED MEDICAL SPENDING ACCOUNT The Unreimbursed Medical Spending Account (UMSA) allows you to save taxes on out-of-pocket medical and dental expenses that reduce your spendable income. Contributing money to the UMSA can result in a reduction in taxes because the money you contribute to your account is free from federal income, Social Security, and Medicare taxes and remains tax-free when you receive it. Under this plan, each calendar year you may set aside up to $2,000 of your salary before taxes in a health care spending account, so that you and your eligible dependents can be reimbursed for eligible expenses incurred during the year. These include such expenses as copayments and deductibles for medical, prescription, and dental bills, expenses for medical services not covered by health plans or your State vision coverage such as contact lens solution, hearing aids, etc., and any other health care expense you can deduct on your income tax, except premiums for health care which are covered under the POP (see above for details). IRS Publication #502, Medical and Dental Expenses, provides a complete list of services eligible for reimbursement. Additionally, the IRS has stated that certain expenses for medical care, i.e., costs for diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, may be reimbursed by an UMSA even though not deductible on income taxes. Examples of these expenses are antacids, aspirin, cough medicine, allergy medication, and certain other over-thecounter drugs purchased without a prescription. The IRS still does not consider vitamins and dietary supplements not prescribed by a physician for one of the purposes listed above as reimbursable expenses under an UMSA. Since no medical or dental plan will pay for everything, you will be able to save money by using before-tax dollars to pay for these bills. First, you must estimate how much you will spend on unreimbursed health care during the plan year. Based on the amount you elect, contributions will be taken out of your paycheck each pay period throughout the calendar year. It is important to base this estimate on past experience because unused contributions must be forfeited. If you carefully review your history of unreimbursed health care expenses and anticipate what you will spend in the coming year before making an election, you can eliminate the possibility of having to forfeit unused contributions at the end of the calendar year. You may submit claims for UMSA services performed between January 1 of the plan year and March 15 of the following year (For example: January 1, 2007 through March 15, 2008). Claim forms for eligible services must be submitted no later than April 30 of the following year. When you file your claim, you will be reimbursed for up to the total amount you have elected to contribute, whether or not the deductions to date from your pay Fact Sheet #44 September 2006 Page 2

12 FN Fact Sheet #44 A PUBLICATION OF THE NEW JERSEY DIVISION OF PENSIONS AND BENEFITS have totaled the amount of your claim. When filing for reimbursement, you must verify that you have not been reimbursed for the expense from any other source. While the federal government offers a federal income tax deduction for unreimbursed eligible health care expenses which exceed 7.5% of your adjusted gross income, the UMSA offers tax-free reimbursement on each and every dollar of your eligible expenses, which may provide immediate tax savings for those who do not meet the medical expense deduction threshold. In addition, the UMSA also saves you Social Security and Medicare taxes, another 7.65% on every dollar. Keep in mind, however, that you cannot deduct expenses reimbursed from the spending account on your federal income tax. DEPENDENT CARE SPENDING ACCOUNT If you have to pay for care for your dependents in order to work, you may want to take advantage of the Dependent Care Spending Account (DCSA) plan. Contributing money to the DCSA can result in a reduction in taxes because the money you contribute to your account is free from federal income, Social Security, and Medicare taxes and remains tax-free when you receive it. The plan allows you to set aside up to $5,000 of your salary before-taxes each calendar year to pay for qualified dependent care expenses incurred in that calendar year. You then file claims for reimbursement of eligible expenses. When you file your claim, you cannot be fully reimbursed until your deductions to date from your pay are at least equal to the amount of your claim. Eligible dependents include an employee s children below age thirteen, the employee s nonworking spouse if physically or mentally incapable of selfcare, and any other person considered a dependent for tax purposes who is incapable of self-care and who normally spends at least eight hours each day in the employee s home. The types of services eligible for reimbursement include a qualified day care center, nursery school, or summer day camp (but not overnight camping), a baby-sitter if needed to allow the employee to work, a housekeeper whose duties include day care, and someone who cares for an elderly or incapacitated dependent. For a complete list of dependent care expenses, see IRS Publication #503, Child and Dependent Care Expenses. You may submit claims for DCSA services performed between January 1 of the plan year and March 15 of the following year (For example: January 1, 2007 through March 15, 2008). Claim forms for eligible services must be submitted no later than April 30 of the following year. You can use the federal tax credit instead of the DCSA. Generally, if your adjusted gross income is more than $24,000 a year, using the DCSA is better. Keep in mind, however, that any payment received from the DCSA will reduce dollar-for-dollar the amount that can be considered for tax credit and vice versa. You will have to decide which method is better for you based on your income and personal tax status. Under the tax credit provision, you can take a direct tax credit ranging from 20% to 30% of your eligible dependent care expenses. With the tax credit, eligible care expenses are limited to an annual maximum of $2,400 for one dependent or $4,800 for two or more dependents. For example, if you re paying $90 per week (about $4,700 per year) for day care and you re in the 15% federal tax bracket, you would save $1,060 in taxes by paying your day care bills through your Dependent Care Spending Account. If you are in the 28% federal tax bracket, your savings would be $1,670. Under the UMSA or DCSA, any unused contributions remaining in an account at the end of the plan year are forfeited. You have until April 30 of the following year to file for eligible reimbursement. If you have questions about the Dependent Care Spending Account or the Unreimbursed Medical Spending Account, contact Horizon Blue Cross Blue Shield of new Jersey, which administers the FSA plans for the State of New Jersey. Horizon's Tax$ave Web site is available through the Tax$ave link on the Pensions and Benefits' home page at: You may also reach Horizon by phone Monday through Friday from 8:00 a.m. - 5:00 p.m. at September 2006 Page 3 Fact Sheet #44

13 Fact Sheet #44 A PUBLICATION OF THE NEW JERSEY DIVISION OF PENSIONS AND BENEFITS FN SOCIAL SECURITY IMPLICATIONS Since payments to the Flexible Spending Accounts (UMSA and DCSA) and POP lower annual earnings against which Social Security deductions or employer contributions are made, there is a concern that participation in these plans would result in reduced Social Security benefits at retirement. If you were born after 1928, your Social Security benefits are calculated using a 35-year average of your earnings. A reduction of $2,000 a year or even $5,000 a year over some portion of this 35-year span would have little effect on your average salary and, therefore, minimal impact on your Social Security benefits. The Social Security Administration has provided us with an example of an employee who retired in 1998 at age 65 whose wages had been at the maximum wages subject to Social Security deductions. Upon retirement, this individual's monthly Social Security allowance was $1,343. If that same person had been contributing $2,000 a year for the last 10 years to a Flexible Spending Account, the subsequent reduction in Social Security wages would have produced a monthly Social Security allowance of $1,335, a difference of only $8 per month. DOMESTIC PARTNERS AND TAX$AVE The Internal Revenue Service does not recognize a New Jersey same-sex domestic partner as a dependent for tax purposes in the same manner that it recognizes a spouse or the dependent children of an employee. Therefore, your employer may have to treat same-sex domestic partner benefits as federally taxable. As a result, a same-sex domestic partner must be able to qualify as a tax dependent of the employee for federal tax filing purposes under Internal Revenue Code Section 152 before an out-ofpocket medical expense incurred by the same-sex domestic partner can be reimbursed under the Unreimbursed Medical Spending Account and before any premiums that the employee pays for the samesex domestic partner coverage can be made on a pre-tax basis under the Premium Option Plan. See IRS Tax Topic 354, Dependents, for additional information on the requirements for establishing dependent status for federal tax purposes. If the same-sex domestic partner is not a qualified tax dependent of the employee, the domestic partner's SHBP coverage is considered federally taxable and the employee cannot be reimbursed under the Unreimbursed Medical Spending Account for any out-of-pocket medical expense incurred by the domestic partner, nor make pre-tax payments for the cost of the domestic partner's coverage under the Premium Option Plan. (Pre-tax dollars may still be used to pay for the employee's portion of the cost of his or her own and dependent children's coverage.) Same-sex domestic partner SHBP benefits are not subject to New Jersey State income tax. If you live outside of New Jersey, you should check with your State's tax agency to determine if the same-sex domestic partner benefit is subject to state taxes. Additional information about the New Jersey Domestic Partnership Act can be found in Fact Sheet #71, Benefits Under the Domestic Partnership Act. This fact sheet has been produced and distributed by: New Jersey Division of Pensions and Benefits PO Box 295 Trenton, New Jersey (609) TDD for the hearing impaired (609) URL: pensions.nj@treas.state.nj.us This fact sheet is a summary and not intended to provide total information. Although every attempt at accuracy is made, it cannot be guaranteed. Fact Sheet #44 September 2006 Page 4

14 Horizon Healthcare Three Penn Plaza East PP-05S Newark, NJ Phone: (800) Fax: (973) Unreimbursed Medical / Dependent Care Spending Account Change in Family Status While Actively Employed EMPLOYEE NAME (PRINT) HOME ADDRESS CITY STATE ZIP ID # HOME PHONE #: ( ) WORK PHONE #: ( ) EMPLOYER NAME: You MUST complete this form and return it to your benefits administrator within sixty (60) days of the change in family status in order to elect to participate or change your annual election amount. Date of Change in Family Status: Please check one of the following: New Election Change my Annual Salary Deduction Amount Suspend my Annual Salary Deduction Amount Due to: Marriage Divorce Birth or legal adoption of a child Death of a dependent Change in work status of spouse Significant change in health coverage due to spouse s employment Change in cost or coverage of Dependent Care New Election due to Change in Family Status I elect to participate in the Unreimbursed Medical Spending Account. I direct and authorize my employer to reduce my annual salary for the remainder of the calendar year by $. I understand that my salary will be reduced in equal amounts from my regular paycheck. I elect to participate in the Dependent Care Spending Account. I direct and authorize my employer to reduce my annual salary for the remainder of the calendar year by $ (max.$5,000). I understand that my salary will be reduced in equal amounts from my regular paycheck. Change: Please complete the following: I elect to change my Annual Salary Deduction Amount from $ to $ for the Unreimbursed Medical Spending Account due to a Change in Family Status. I elect to change my Annual Salary Deduction Amount from $ to $ for the Dependent Care Spending Account due to a Change in Family Status. I understand that: This election will remain in effect and cannot be revoked and changed during the Calendar Year, unless the revocation and new election are on account of and consistent with the occurrence of a Change in Family Status. Employee Signature: Date: FOR EMPLOYER USE ONLY BENEFITS ADMINISTRATOR: DATE: (W0805) Services and products may be provided by Horizon Healthcare, Three Penn Plaza East, Newark, New Jersey

15 Mail or Fax Form to: Horizon Healthcare 3 Penn Plaza East PP-05S Newark, NJ Fax: UNREIMBURSED MEDICAL/DEPENDENT CARE ELECTION FORM STATE OF NEW JERSEY (PRINT) EMPLOYEE NAME ID # STREET ADDRESS HOME PHONE # CITY STATE ZIP WORK PHONE # DATE OF HIRE FAX # EMPLOYER NAME: (State Department & Division, College or University - - Campus) Unreimbursed Medical I elect to participate in the Unreimbursed Medical Spending Account. I direct and authorize my employer to reduce my annual salary for the calendar year by $ ( minimum $100; maximum $2,000). I understand that my salary will be reduced in equal amounts from my regular paycheck. II elect not to participate at this time. Dependent Care The total amount I can deposit into my Dependent Care Spending Account cannot exceed the lesser of $5,000 ($2,500 for a married person filing separately) or my spouse s earned income. If my spouse is a full-time student, or is physically or mentally incapable of self-care, my election cannot exceed $2,400 for dependent care expenses applying to one dependent, or $4,800 for dependent care expenses applying to two or more dependents. If my spouse does not work and is not disabled or a full-time student, I cannot participate in the Dependent Care Spending Account. I elect to participate in the Dependent Care Spending Account. I direct and authorize my employer to reduce my annual salary for the calendar year by $ ( minimum $250; maximum $5,000 - see above). I understand that my salary will be reduced in equal amounts from my regular paycheck. I elect not to participate at this time. I understand that: The amount(s) listed above will reduce the salary on which voluntary 457 deductions are taken. This election form will remain in effect and cannot be revoked or changed during the calendar year, unless the revocation and new election are on account of and consistent with a change in family status (e.g. legal separation, divorce, or marriage; birth or legal adoption of a child; death of a dependent; or change in work status for you or your spouse). You can continue to file claims for expenses incurred during the calendar year until March 31st of the following year. Funds not used during the calendar year are forfeited. In effect, you must "use it or lose it". Your Signature Date FSA ELECTION FORM STATE (W0805) Services and products may be provided by Horizon Healthcare, Three Penn Plaza East, Newark, New Jersey

16 Tax Savings You Can Bank On Flexible Spending Accounts

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18 Highlights Flexible Spending Accounts Flexible Spending Accounts (FSA) are a convenient, before-tax way to pay for eligible out-of-pocket health care expenses, as well as dependent care expenses. Money from each paycheck is deposited into your account(s) before federal income, Social Security and Medicare taxes* are withheld. You are then reimbursed for eligible expenses using before-tax dollars from your account(s). Of course, participation in the plans is totally voluntary. Horizon Healthcare administers these plans for the state of New Jersey. Effective date The Unreimbursed Medical and Dependent Care Spending Accounts are calendar year programs. Employees currently eligible for these programs must enroll during the open enrollment period. New employees can join the plans once they become eligible. If you are a new hire, the waiting period for the Dependent Care Flexible Spending Account is 30 days, and for the Unreimbursed Medical Spending Account is 60 days. Contribution amount You can contribute up to $2,000 each calendar year in the Unreimbursed Medical Account and up to $5,000 per household ($2,500 for a married person filing separately) each calendar year in the Dependent Care Account, regardless of when you first become eligible during the year. The minimum amount you can contribute each calendar year is $100 for the Unreimbursed Medical Account and $250 for the Dependent Care Account. Reimbursements Claims are reimbursed weekly. Reimbursement checks are mailed to your home address or can be direct deposited into your bank account. You can continue to file claims for expenses until April 30 of the following year. Funds not used are forfeited. In effect, you must use it or lose it. Grace period - revised You now have through March 15 of the following year to incur eligible unreimbursed medical and dependent care expenses for the current plan year. While this does not eliminate the use-it-or-lose-it rule completely, you now have a great advantage to avoid forfeiting unused funds. If you have a balance remaining in your Unreimbursed Medical or Dependent Care Account as of December 31, you can use those funds for eligible expenses incurred from January 1 through March 15 of the following year. For example, if there are leftover 2006 funds, those dollars will be used for any 2007 expenses incurred up to March 15, Then 2007 funds will be used once the 2006 dollars are exhausted. The deadline to submit claims for the run-off period is April 30. Changing or terminating participation Your election must remain in effect for the calendar year. You may change your election during the year only if you have a qualified change in family status. Participation terminates each December 31. You must re-enroll in the FSA plans each calendar year during the open enrollment period. * Unreimbursed medical accounts are also exempt from state tax for Pennsylvania residents. 1

19 Unreimbursed Medical What if I have an out-of-pocket health care expense? The Unreimbursed Medical FSA plan is an opportunity for you to pay for out-of-pocket health care (medical, dental and vision) expenses incurred by you and your family members with before-tax dollars. This may be the only tax advantage available to you for these kinds of expenses. Few people can ever qualify to deduct these expenses on their tax returns. What s eligible? Expenses eligible for reimbursement include: Physician s fees. Annual physical examinations. Contact lenses and solutions. Diabetic supplies. Eyeglasses. Eligible over-the-counter drugs. Prescription drugs (except cosmetic prescriptions). X-rays/lab fees. Hospital services. Chiropractor s fees. Hearing aids and their batteries. Surgery. Ambulance service. LASIK eye surgery. Smoking cessation programs/rx. Psychiatrist s and psychologist s fees. Acupuncturist s fees. Orthopedic shoes/orthotics. Durable medical equipment. Travel to and from a physician s office. Weight loss programs (requires a physician s note). Dental examinations. Dentures. Orthodontia. Periodontics. Not eligible Expenses that are not eligible for reimbursement through the Unreimbursed Medical FSA include: Expenses for cosmetic surgery. Insurance premiums. Cosmetic prescriptions. Teeth whitening. Vitamins and supplements. Gym memberships. Expenses incurred before you become eligible to participate in the account. Expenses incurred after your termination date. Expenses that are paid by health insurance. Only necessary medical and dental expenses NOT paid by health insurance will be reimbursed under the Unreimbursed Medical FSA. 2

20 Dependent Care Do I need a Dependent Care FSA? Do you have children under age 13 who are in day care/after-school programs while you work? Do you pay for the care of disabled or elderly dependents so you can work? If you answered yes to either of the above questions, then the Dependent Care FSA may be right for you. What s eligible? You can use the Dependent Care FSA to pay yourself back with before-tax dollars for day care expenses incurred for your children under age 13, or for any other person considered your dependent for tax purposes who is physically or mentally incapable of self-care, regardless of age. Eligible expenses Expenses eligible for reimbursement through the Dependent Care FSA include: Dependent care (including wages and related taxes) provided in your home by a baby sitter, housekeeper or relative who is not your dependent. Dependent care provided outside your home, including qualified day care, day camp or other outside dependent/child care services, such as before- and after-school programs. Payment made for dependent care services outside your home for a dependent who spends an average of eight hours a day in your home. Preschool/nursery school. Generally, eligible child care costs include only those for the actual care of your dependent, not costs for education, supplies or meals unless those costs cannot be separated. Refer to IRS Publication 503 for a complete list of eligible expenses. Their Web address is < Not eligible Expenses that are not eligible for reimbursement through the Dependent Care FSA include: Dependent care provided by another dependent or your child under age 19. Dependent care obtained for nonwork-related reasons. Expenses for overnight camp. Dependent care expenses incurred if your spouse does not work, unless your spouse is a full-time student or disabled. Any expenses you claim for the dependent care tax credit on your federal income tax return. Expenses provided by another organization or provided without cost. Care provided in a group care center that does not comply with state and local laws. Costs for after-school educational programs (i.e., tutoring). Educational expenses (such as those for private school) for kindergarten or higher. Expenses incurred before you become eligible to participate in the account. Expenses incurred after your termination date. 3

21 Federal Tax Credit vs. Dependent Care FSA Federal tax credit vs. dependent care spending: Which is right for you? Your federal income tax return allows you to take a credit for dependent care expenses. Generally speaking, the Dependent Care FSA provides more tax savings than the federal tax credit. Most families with an annual gross income above $43,000 will save MORE tax dollars by using the Dependent Care FSA. Keep in mind that you save tax dollars no matter which option works better for you. Comparison You should consider whether using the federal tax credit for dependent care expenses can save you more in taxes than using the Dependent Care FSA. Because you cannot claim the same expenses in both places, your choices are: Claim your eligible dependent care expenses under the dependent care tax credit on your federal income tax return, or Use the Dependent Care FSA for reimbursement of your eligible dependent care expenses. Visit our Internet site for an online worksheet to compare the Dependent Care FSA vs. the Federal Child Care Credit. Horizon Healthcare s Web site can be reached through a link from the Division of Pensions and Benefits home page at < The dependent care tax credit s higher limit on qualifying expenses changed how the tax credit and Dependent Care FSA interrelate. An employee with two children and $6,000 in dependent care expenses will be able to use both the Dependent Care Credit and Dependent Care FSA. The employee will first optimize participation in the Dependent Care FSA at $5,000 and then take the Dependent Care Credit on the remaining $1,000 ($6,000 reduced by FSA deferrals of $5,000) of eligible expenses. Tax savings When you establish a Dependent Care FSA, the money you contribute to your account is free from federal income, Social Security and Medicare taxes and remains tax free when you receive it. This results in savings for you! Getting started is easy. First, estimate how much you will spend on dependent care in the calendar year. Based on the amount you elect, contributions will be taken out of your paycheck each pay period throughout the calendar year. Then, you file a claim for the expense and are reimbursed from your account. You are reimbursed up to your account balance at the time of reimbursement. If there is an outstanding balance, this will automatically pend until additional payroll deductions are accrued. 4

22 Worksheet Please read the attached information before completing the worksheet. Unreimbursed Medical FSA Prior Year Projected List the amount you spent for: Actual Expenses Expenses Deductibles/coinsurance/copayments $ $ Eligible over-the-counter drugs $ $ Vision care (eye exams, prescription contact lenses and eyeglasses) $ $ LASIK eye surgery $ $ Contact lens solutions $ $ Routine exams (Ob/Gyn, well visits, etc.) $ $ Prescription drugs $ $ (Does not include cosmetic prescriptions) Wheelchair, crutches and medical appliances $ $ Travel costs related to medical care $ $ Chiropractor/accupuncturist/mental health fees $ $ List the amount you spent for dental expenses: Examinations and cleanings $ $ Fillings, crowns and bridges $ $ Orthodontics $ $ Dentures, including replacements $ $ Implants, inlays and X-rays $ $ Periodontics $ $ Projected Unreimbursed Medical FSA Deposit $ Total $ Total $ Dependent Care FSA Prior Year Projected Actual Expenses Expenses Payments made for dependent care services provided in your home $ $ Day care center $ $ Nursery school/preschool $ $ Before- or after-school care $ $ Summer day camp facility $ $ Projected Dependent Care FSA Deposit $ Total $ Total $ 5

23 Rules for Unreimbursed Medical and Dependent Care FSAs IRS rules for Unreimbursed Medical and Dependent Care FSAs Unreimbursed Medical You must attach a copy of the Explanation of Benefits (EOB) or other documentation to substantiate your medical expense from the insurance carrier when you submit an Unreimbursed Medical FSA claim. Medical and dental expenses paid with your Unreimbursed Medical FSA reimbursement cannot be claimed as a deduction for federal income tax purposes. Dependent Care Your total contribution to the Dependent Care FSA cannot be greater than your earned income or your spouse s, whichever is lower. For example, if your spouse s salary is $4,000 and your salary is $50,000, the most you can contribute is $4,000. If you and your spouse file a joint income tax return and both have Dependent Care FSA, your total combined limit is $5,000 per calendar year. Likewise, if you and your spouse file separate income tax returns, your individual Dependent Care FSA limit is $2,500. If you are single with an eligible dependent, you can elect up to $5,000 per calendar year. You must report the name, address and Social Security number or taxpayer ID number of each dependent care provider when you submit a Dependent Care FSA claim. Making changes during the year To qualify for the special tax treatment of the FSA programs, you cannot make changes in your election amount during the calendar year unless you experience a qualified change in family status that is recognized by the IRS. Changes in family status include: Marriage or divorce. Birth or adoption of a child. Death of a spouse or dependent. Termination of your or your spouse s employment. The switching from part-time to full-time or from full-time to part-time employment status by you or your spouse. Significant change in your spouse s health coverage due to change in employment. Unpaid leave of absence by you or your spouse. Change in cost or coverage for dependent care. Residence change. If money is left over Make sure you estimate accurately how much you ll spend during each calendar year. Any amount remaining in your spending account(s) that you do not claim will be forfeited. If you overestimate how much you ll spend, federal law states that you must forfeit any amount that s left in the account. On the other hand, don t worry if you have estimated accurately but haven t filed claims yet. You have until April 30 of the following year to file claims for this money. 6

24 Enrollment and filing claims Participants now have three ways to access funds from their FSAs. Filing claims You can submit an FSA claim along with the required backup documentation to: Horizon Healthcare 3 Penn Plaza East, PP-05S Newark, NJ Participants can also file FSA claims electronically on the Web site. The Benny TM MasterCard is a special MasterCard that draws on the value of your annual FSA election amount. Each time you incur a qualified health care expense at a health care provider that accepts MasterCard, you simply use your Benny MasterCard. The amount of your qualified purchases will be deducted from your FSA automatically. You will receive a Benny MasterCard automatically once you enroll in the Unreimbursed Medical FSA. Should you enroll? The worksheet included in this booklet assists you in calculating how much of your annual salary you would like deducted and allocated to the Unreimbursed Medical and/or Dependent Care FSA. Also, visit the Division of Pensions and Benefits Internet site at to access the interactive online worksheets for both the Unreimbursed Medical and Dependent Care FSAs. These worksheets allow you to estimate your own specific potential tax savings. Because you are not paying Social Security tax on the portion of your income deposited into your FSA(s), your Social Security benefits may be slightly reduced. However, the tax savings you gain would more than offset the reductions. The minimum amount for which you are reimbursed is $25 (except when annual election minus claims paid is less than $25). All reimbursement checks are mailed to the participant s home address. Employees also have the option to elect direct deposit of FSA reimbursements into a checking or savings account. The maximum amount available for reimbursement during the calendar year for the Unreimbursed Medical FSA is the annual election (minus claims paid). You must have enough money in your Dependent Care FSA to cover the amount of your claim(s) before payment occurs. For example, if your account balance is $150 and you submit child care expenses of $275, you would receive $150. The $125 balance would automatically be paid as soon as you accumulate more money in your Dependent Care FSA. 7

25 Horizon Healthcare s Available Services Interactive Web site Horizon Healthcare s Web site can be reached through a link on the Division of Pensions and Benefits Internet home page at < Online Worksheets - Dependent Care vs. Federal Tax Credit. - Unreimbursed Medical Worksheet. Online Account Balance Inquiry - Receive up-to-date account balance information over the Internet. Online Claim List - Provides information on the most recent claims submitted. Online Payment List - Details the most recent FSA payments issued from your account(s). Online FSA Enrollment - Enroll in the FSA accounts with the ease of the Internet during the open enrollment period. Payment Option Direct Deposit Participants can elect to direct deposit FSA reimbursements into a checking or savings account. Fax Service Fax your Unreimbursed Medical and Dependent Care claims to our office at or hour Voice Response System Account Balance Inquiry Receive up-to-date account balance information with the ease of a touch-tone phone. Call toll free at FSA Enrollment Enroll in the FSA plans using our touch-tone phone system during open enrollment. Call toll free at Online Claim Entry Module - Submit your Unreimbursed Medical and Dependent Care claims over the Internet Downloadable Forms - Download and print FSA forms directly to your PC: FSA Election Form Direct Deposit Enrollment Change in Status FSA Claim Form... and more 8

26 Unreimbursed Medical / Dependent Care Flexible Spending Accounts Election Form Return form to Horizon Healthcare 3 Penn Plaza East, PP-05S, Newark, New Jersey S.S. # - - Employee Name (print): Home Address: Fax #: City: State: Zip Code: Home Phone #: ( ) Work Phone #: ( ) Date of Hire: Date of Birth: Employer Name: Unreimbursed Medical (State Department and Division, College or University Campus) I elect to participate in the Unreimbursed Medical Flexible Spending Account. I direct and authorize my employer to reduce my annual salary for the calendar year by $ (minimum $100; maximum $2,000). I understand that my salary will be reduced in equal amounts from my regular paycheck. I elect not to participate at this time. Dependent Care The total amount I can deposit into my Dependent Care Flexible Spending Account cannot exceed the lesser of $5,000 ($2,500 for a married person filing separately) or my spouse s earned income. If my spouse does not work and is not disabled or a full-time student, I cannot participate in the Dependent Care Spending Account. I elect to participate in the Dependent Care Flexible Spending Account. I direct and authorize my employer to reduce my annual salary for the calendar year by $ (minimum $250; maximum $5,000 see above). I understand that my salary will be reduced in equal amounts from my regular paycheck. I elect not to participate at this time. I understand the following: This election form will remain in effect and cannot be revoked or changed during the calendar year, unless the revocation and new election are on account of and consistent with a change in family status (e.g., legal separation, divorce or marriage; birth or legal adoption of a child; death of a dependent; or change in work status for you or your spouse). I can continue to file claims for expenses incurred during the period of coverage until April 30 of the following year. Funds not used during the calendar year are forfeited. In effect, I must use it or lose it. YOUR SIGNATURE DATE

27 The plan is administered by Horizon Healthcare 3 Penn Plaza East, PP-05S, Newark, New Jersey and SM Registered and service marks of Horizon Healthcare Services, Inc Horizon Healthcare Services, Inc (W0706)

28 Open Enrollment News New Jersey Division of Pensions and Benefits TaxSave 2007 Published Annually for New Jersey State Employees Fall 2006 Enroll in Tax$ave and Keep More of What You Earn The Tax$ave 2007 Open Enrollment period begins on October 1, 2006 and ends on October 31, Tax$ave Open Enrollment is your opportunity to save tax dollars in the 2007 tax year with the Premium Option Plan and the two Flexible Spending Accounts (FSAs) the Unreimbursed Medical Spending Account and the Dependent Care Spending Account. Enrollment in the Premiun Option Plan component of Tax$ave is automatic every year. The Flexible Spending Accounts require active enrollment each year. There are a variety of easy ways to enroll. You may enroll over the phone by calling Horizon BCBSNJ s automated voice response system at (October 1 October 31, 2006). You may enroll over the Internet during the same time period at: and follow the link to the Horizon BCBSNJ Web site. You can enroll by obtaining an enrollment kit from your benefits administrator. These forms must be postmarked by October 31, 2006, in order to enroll for the 2007 plan year. For more information about the Tax$ave plans, see the Premium Option Plan and Tax$ave... Savings You Can Bank On fliers that accompanied this newsletter along with your paycheck, or visit the Tax$ave Web page at: treasury/pensions/taxsave.htm NEW! FSA Eligible Expense and Claim Periods Extended The period for which expenses are considered eligible for reimbursement has been extended this year for BOTH the Unreimbursed Medical Spending Account and the Dependent Care Spending Account. If you are enrolled in the UMSA and/or the DCSA, you may now submit claims for qualifying expenses incurred between January 1 of the plan year and March 15 of the following year (For example: the 2006 plan year s period for eligible expenses is now extended to March 15, 2007). The deadline for submitting any claim forms for a particular plan year has also been extended to April 30 of the following year. Under the Unreimbursed Medical Spending Account and Dependent Care Spending Account, any unused contributions that remain unclaimed after the April 30 deadline are forfeited. Benny Card Enhancement As part of the eligible expense period extension, enhancements have also been made to the Benny TM Card benefit of the Unreimbursed Medical Spending Accounts. Beginning in January 2007, the Benny Card will contain a special look back feature that will access any unused 2006 Unreimbursed Medical Spending Account funds before using funds contributed in the 2007 plan year. Using Benny is convenient because funds are immediately transferred from your Unreimbursed Medical Spending Account at the time you incur a qualifying expense. You can use your Benny Card for qualifying expenses, such as covered prescription copayments, health plan deductibles, orthodontics, doctor and emergency room copayments, eyeglasses, Lasik surgery, and uncovered dentist or other provider fees. For a list of expenses that are eligible under the Unreimbursed Medical Spending Account, visit the Horizon BCBSNJ Web site. * The Benny TM Card; a special MasterCard that draws on the value of your annual Unreimbursed Medical Spending Account election amount. The Benny Card is included free when you sign up for an Unreimbursed Medical Spending Account through Tax$ave. If you are a continuing Tax$ave member, you should continue to use the Benny Card that you received at the start of the 2006 plan year. The value of your Benny Card is automatically renewed with your Tax$ave 2007 election amount. Direct Deposit Available for FSA Payments Horizon Healthcare offers direct deposit of reimbursement payments from your Unreimbursed Medical Spending Account and Dependent Care Spending Account. The direct deposit application is available in the Welcome Kit that you receive after enrolling in an FSA plan, or the form can be printed from the Horizon BCBSNJ Web site.