FLEXIBLE SPENDING ACCOUNT HANDBOOK

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1 FLEXIBLE SPENDING ACCOUNT HANDBOOK BENEFIT OVERVIEW FOR EMPLOYEES AND THEIR DEPENDENTS How do Flexible Spending Accounts Work? An FSA is a Flexible Spending Account that allows you to set aside money on a pre-tax basis to pay for eligible healthcare and/or dependent day care expenses. This means that you could save about $.30 on every dollar you contribute! The amount that you choose to contribute is taken out of your paycheck in equal amounts each pay period, making it easy to save for out-of-pocket expenses that you have during the plan year. You decide how much you want to contribute into your FSA Medical and/or Dependent Care accounts for the upcoming plan year. See attached Healthcare Flexible Account Worksheet for guidance. You should estimate your expenses carefully. Each pay period, the amount you elected is deducted from your pay check before taxes are withheld and then deposited into your Flexible Spending Account. After you incur eligible expenses and submit your claim forms, the funds in your flexible spending account are reimbursed to you tax-free. When you receive your W-2 at year end, it will show your annual earnings less the contributions you made to your flexible spending account. You are not liable for federal, Social Security and in most cases state and local taxes on the amount you deposit because the deposits you made are not part of your taxable income. In exchange for the tax break you get for participating, federal law requires forfeiture of any unused funds left at the end of the year. To avoid forfeitures, plan carefully, do not contribute more that you know you will need. FSA Medical Spending Account This FSA Medical Spending Account allows you to pay for eligible medical, dental, prescription, vision and/or hearing expenses that are not covered by insurance. Expenses must be incurred during your eligible dates of coverage in order to be reimbursable. Eligible expenses include, but are not limited to: Copays, coinsurance and deductibles Dental treatment (excluding cosmetic treatment) Eyeglasses & contact lenses Hearing aids Laser eye surgery Over-the-counter (OTC) items* Orthodontia Physical therapy and chiropractic care Prescriptions *As of January 1, 2011, OTC medicines and drugs require a written prescription from your doctor in order to get reimbursed through an FSA. You will need a doctor s prescription that includes the medication information and that this is medically necessary. However, there are many OTC items that do not require a prescription to get reimbursed such as: Band-aids, elastic bandages & wraps Braces & supports Contact lens solution & supplies Denture adhesive Diagnostic tests & monitors First aid supplies List of sample expenses are available on our website: These expenses are for your dependents even if your dependents are not covered under your medical, dental or vision plans. In general you can use the FSA Medical Account for any qualified health care expenses that are not covered by your insurance.

2 Dependent Care Account The dependent care account can be used to pay dependent care expenses for your child who is under the age of 13 or for a spouse or dependent that is unable to care for himself or herself while you work. To be eligible to contribute to this account, you must have a dependent that needs care while you and your spouse are at work. Expenses for children under age 13 who qualify as dependents on your income tax return are reimbursable. Eligible expenses include: Before and after school programs Day care (child & adult) Nursery school or preschool Summer day camp Weekend or "evening out" baby sitting expenses and overnight expenses are ineligible. The maximum exclusion under a Dependent care account for married individuals filing a joint return (or for an unmarried parent) is $5000. Married individuals filing separately are subject to a lower exclusion ($2,500). Other IRS rules or SPD may apply. Please contact 125Company or your tax professional for more information. Please Note: Dependent Care Tax Credit verses the Dependent Care Flexible Spending Account, you will have to examine your own tax situation to determine which one is more tax advantageous for you. As with any tax or accounting concern, you should consult with your tax advisor for additional information. Our web site, has tax chart guidelines which could help you with your decision. The 125Company Benefit's Card Companies that offer their employees the 125Company VISA Benefit Card will allow you to swipe & pay for your FSA Medical and Dependent Care expenses. Remember to save all your receipts. You may need to provide documentation to substantiate certain transactions. Our VISA card has a special three year renewal to reduce costs and to promote continuity between plan years. Overview of Your Account This one-stop portal gives you 24/7 access to view information and manage your Flexible Spending Accounts. It enables you to: File a claim online Upload receipts View up-to-the-minute account balances View your account activity, claims history and payment (reimbursement) history Report a lost/stolen Card and request a new one Update your personal profile information Change your login ID and/or password Download plan information, forms and notifications

3 HEALTH CARE FLEXIBLE ACCOUNT WORSHEET ELIGIBLE EXPENSES DU RING YOUR PLAN YEAR : ONLY EXPENSES NOT CO VERED BY OTHER INSURANCE OR ANY OTH ER SOURCE ARE DOLLAR AMOUNT MEDICAL PLAN DEDUCTI BLE: MEDICAL CO -PAYMENT: DENTAL PLAN DEDUCTIB LE: DENTAL CO-PAYMENT: MEDICAL, DENTAL, AND /OR VISION EXAMS: PRESCRIPTION DRUGS AND ANY REQUIRED DOCTOR S RX # FOR OTC CHANGES FOR JANUARY 1ST, 2011 : ANY ANTICIPATED MEDI CAL BALANCE BILLING OVER AND ABOVE HEAL T H CARRIER ALLOW ANCE: EYEGLASSES/CONTACT L ENSES: ORTHODONTIA: AMOUNTS PAID OVER PL AN LIMITS: (NON-PARTICIPATING OR NON - NETW ORK PROVIDERS, VISIT OR DOLLAR MAXIMUMS ON SERVICES ) OTHER ELIGIBLE HEAL TH CARE EXPENSES: DEPENDENT CARE EXPEN SES (PLEASE REVIEW QUALI FICATION RULES) TOTAL FOR PLAN YEAR:

4 What is the Definition of an Eligible Claim as described in IRC Sec 213d? IRC 213(d) Definition and for purposes of this section - (1) The term "medical care" means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. Excerpt from Title 26, Subtitle A, Chapter 1, subchapter B, Part VII Section 213. While the IRC Code is extensive and we cannot cover every circumstance, the term "medical care" does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease. (B) Cosmetic surgery defined. - For purposes of this paragraph, the term "cosmetic surgery" means any procedure which is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. IRC 213d - Sec 9. This list is non-inclusive and does not represent all allowable or non-allowable charges. You may refer any further questions regarding allowable and non-allowable charges to your service provider and SPD. Eligible Expenses Adoption - Medical Expense (incurred before adoption is finalized) Alcoholism Treatment Ambulance Artificial Limbs Artificial Teeth Braille Books/Magazine (difference between regular material and Braille materials) Car Controls for Handicapped Chiropractic Services Christian Science Practitioners (payments for medical care) Coinsurance Amounts and Deductibles Contact Lenses and Solution Crutches Dental Treatment Diagnostic Tests Drug Addiction Treatment Eye Examinations and Eyeglasses Guide dog or Other Animal (purchase, training, and care of animal) Hearing Aids and Examinations Hospital Services Injections Insulin Laboratory Fees Lasik Eye Surgery Learning Disabled Child: Special School/Teacher Medical Monitoring and Testing Devices (if prescribed by physician for a particular ailment). Medicines (If prescribed by physician to treat a specific ailment and if only available by prescription.) Occlusal Guards (to prevent teeth grinding) Operations (Legal operations which treat a specific ailment) Optometrist Orthodontia (unless for cosmetic purposes) Osteopath Oxygen Periodontal Fees Physical Exams (except for employment related physicals) Physical Therapy (for specified medical purpose) Prescription Sunglasses Private Hospital Room Psychiatric Care Psychoanalysis Psychologist Radial Keratotomy Surgery Telephone for the Deaf Transplants Transportation for Seminar on Medical Condition Cost of Seminar on Medical Condition Vaccinations X-Rays

5 Notice: New Regulations Regarding OTC Medications Effective 1/1/2011 The Internal Revenue Service recently issued Notice , which describes the new eligibility limitations of over-thecounter drugs and medicines for tax-free reimbursement under an employer-sponsored health plan. The new ruling states that beginning January 1, 2011, specific OTC medicines and drugs must be prescribed in order to qualify for reimbursement from an employer sponsored health plan (such as an FSA or HRA) and HSAs. The implementation of both eligible and ineligible items will be handled by merchants, through IIAS and will be coordinated by SIGIS (Special Interest Group for IIAS Standards). This will impact the way that many OTC items are purchased. Consumers may begin to schedule additional office visits to obtain prescriptions for newly excluded OTC products or request more expensive prescription alternatives. There may be a rise in manual claims as consumers submit receipts, with prescriptions, for OTC items that are not allowed for debit card by their merchant s point of sale system. Which OTC categories will require prescriptions? The new regulations require prescriptions for the following over-the-counter (OTC) categories: Acid Controllers Digestive Aids Allergy & Sinus Feminine Anti-Fungal/Anti-Itch Antibiotic Products Hemorrhoid Preps Anti-Diarrheal Laxatives Anti-Gas Motion Sickness Anti-Itch & Insect Bite Pain Relief Anti-Parasitic Treatments Respiratory Treatments Baby Rash Ointments/Creams Sleep Aids & Sedatives Cold Sore Remedies Stomach Remedies Cough, Cold & Flu Which OTC purchases will still allow debit card use? Over 27,000 OTC items will remain eligible without a prescription. Such as: Band Aids Elastic Bandages & Wraps Braces and Supports First Aid Supplies Catheters Ostomy Products Contact Lens Supplies & Solutions Insulin & Diabetic Supplies Denture Adhesives Reading Glasses Diagnostic Tests & Monitors Wheelchairs, Walkers, Canes The full updated list of items will be provided by SIGIS by 12/15/2010. The ruling also allows for continued use of debit cards for any purchases at 90% merchants as they do not have an IIAS system and therefore do not substantiate medical items at the point of sale. Substantiation will continue to be required for all purchases at 90% merchants. The list of eligible 90% merchants is available on the SIGIS website. The IRS ruling states that debit card systems are not able to differentiate between prescribed and non-prescribed items, and therefore the impacted OTCs cannot be purchased with a debit card. However, there are Inventory Information Approval Systems (IIAS) that can delineate between OTC and RX OTC items, substantiating only the prescribed purchases. While this should meet the IRS requirements, an additional ruling would be helpful. SIGIS is working with the IRS to obtain an update. Beginning January, 1, 2011, health FSA, HRA and HSA debit cards may be continued to be used or purchase OTC medicine or drugs if: Prior to the purchase, the prescription for the OTC is presented (in any format, i.e. electronic or paper ) to the pharmacy; The OTC medicine is dispensed by the pharmacist with applicable law; The RX number is assigned; The pharmacy must retain a record of the RX number, the name of the purchaser (or the name of the person for whom the prescription applies) and the date and the amount of the purchase; All of the records are available to the employer or its agent upon request; The debit card system will not accept a charge for an OTC medicine unless an RX number has been assigned; and All of the requirements of this guidance are met. What does this mean? A prescription, written by a physician, must be obtained for OTC medicine and drugs for them to be paid from flexible spending accounts. Want more information? Go to