FSA Extension (FSE) Processing in Version 5.8.1 Purpose Introduction IRS Notice 2005-42 allows for a grace period during which expenses for qualified benefits incurred during the grace period may be paid or reimbursed from benefits or contributions remaining unused at the end of the immediately preceding plan year. The grace period cannot extend beyond the fifteenth day of the third calendar month after the end of the immediately preceding plan year to which the expense relates. This document explains the modifications made to the WinFlex125 administrative software to accommodate for this clarification to the proposed regulations. Terminologies, Definitions and Examples FSE (Flexible Spending Account Extension) Although the IRS used the term grace period in Notice 2005-42, there is already an established administrative use for the term grace period. Throughout this document and the WinFlex125 software, the term used for this grace period is Flexible Spending Account Extension (FSE). FSE Period This is the period of time that the Plan Sponsor has defined for the FSE process. The maximum amount of time that can be specified is the fifteenth day after the beginning of the third calendar month following the end of the Plan Year. The FSE Period can be shorter than is allowed by the IRS Notice. FSE Period examples Plan Year End: 12-31-2005 Maximum FSE Period: 3-15-2005 Plan Year End: 6-30-2005 Maximum FSE Period: 9-15-2005 Plan Year End: 6-1-2005 Maximum FSE Period: 9-15-2005 Considerations The length of an FSE period is calculated from the month that the plan ends in Not all FSE periods contain the same number of days as this is dependent on the month in which the plan ends. 1
Program Version Click Help Select About This is the FSE enabled version of Winflex125 Click Close 2
FSE Setup FSE periods are established at the Company, Benefit level. Only Section 125 plan benefits are allowed to have FSE Periods. The Plan Sponsor has the option to offer FSE periods for only select benefits within the Section 125 Plan. For example they could offer an FSE period for a Medical FSA benefit and not a Dependent Care FSA benefit. The logic applied in Winflex125 is that Plan Year End Grace Period encompasses the FSE Period. At a minimum Winflex125 will require that the Grace Period after Plan Year End and the FSE Period be an equal number of days What follow are how-to examples of where and how an FSE Period is established for FSA benefits. 1. Where are FSE settings made? 2. Entering an FSE Period and modifying the Grace Period 3. Entering an FSE Period and retaining the original Grace Period 4. Entering an FSE Period that exceeds the length of the Grace Period 5. Entering an FSE Period that exceeds the IRS regulation NOTES 3
1. Where are FSE settings made? FSE Setup Example 1 Click 5.Benefits Select MEDFSA and click A BENEFIT 4
FSE Setup Example 1 (continued) An FSE Period that ends on 03-15-2006 has been set for this election Select DCBFSA This benefit does not have an FSE Period assigned 5
FSE Setup Example 2 2. Entering an FSE Period and modifying the Grace Period This election was previously established 3-15-2006 is entered as the FSE Period End date Click Accept to save the change 6
FSE Setup Example 2 (Continued) This message is presented The original Grace Period is 90 days and it will end on 3/31/2006 This message offers the user the ability to apply the Grace Period day count to the end of the Plan Year or the end of the FSE Period Click Yes This message is provided Click OK Note the change in the Grace Period days at End of Plan 7
FSE Setup Example 3 3. Entering an FSE Period and retaining the original Grace Period In this example the FSE Period has been set at 3-15-2006 and the Grace Days at End of Plan will not be changed Click Accept This message is presented Click No The Grace Days at End of Plan entry is not changed 8
FSE Setup Example 4 4. Entering an FSE Period that exceeds the Grace Days Period In this example the Grace Days at End of Plan setting is less that the FSE Period (in terms of days). Click Accept This message is presented If Yes is selected the Grace Days at End of Plan setting will change to 137 days Click No This message is presented Click OK 9
FSE Setup Example 4 (Continued) The FSE Period end date is deleted Enter a new date that is either equal to the Grace Period 60 days or increase the Grace Days at End of Plan to 74 to allow the maximum length FSE FSE and Grace Period Notes 10
FSE Setup Example 5 5. Entering an FSE Period that exceeds the IRS Regulation In this example the user is specify an FSE Period End that exceeds what is allowed by the IRS Click Accept This message is returned Click OK and change the entry 11
FSE Processing Philosophy When activated, the FSE process in Winflex125 5.8.1 will automatically move all eligible claims to the prior year to use the participant s oldest balance first. In version 5.8.1 and higher all FSE processing takes place at Claims Post. FSE Processing Described The initial movement of newly posted Current Year claim to the Prior Plan Year will be reported via a text file export to the ACH file folder set in Disbursements post*. Prior Plan Year claims that are posted in subsequent batches may cause the Reversal of Current Year claims there were previously posted to the Prior Year by the FSE process. This Reversal Process will not create adjusting entries but will instead modify existing claims entries and create new claims entries in the Current Year as necessary. This activity will be documented in the Reference information field in the Customer Support Module (CSM). Version 5.8.1 supports the entry and posting of Current and Prior Plan Year claims in the same batch. By design all Prior Year claims are posted to the employee s account first. Any remaining balance to be claimed (determined by a calculation of Annual Election/Funded Balance less Claimed to Date) will then support the FSE processing of Current Plan Year claims and apply them to the remaining balance to be claimed. The remaining balance to be claimed will be updated each time an FSE claim is posted. The result is a more logical and easy to follow process that generates accurate disbursements and reporting. FSE Qualified Claim claims that will be moved to the previous plan year. An FSE eligible claim has a transaction date (date of entry) that is within the Plan Year End Grace Period, has dates of service in the FSE period, and can be covered all or in part by a prior plan year balance. What follows with be a demonstration of how Winflex125 handles FSE processing. Demo company setup Regal Manufacturing (REGAL) Plan Year Statistics Current Plan Year - 2006 - Period of coverage 1/1/2006 to 12/31/2006 Previous Plan Year 2005 - Period of coverage 1/1/2005 to 12/31/2005 FSE processing is allowed for Medical FSA only o The 2005 Plan Year FSE period ends 3-15-2006 Grace days after plan year end 90 *The drive and path to the ACH folder must exist on the PC that is being used to post claims. This does not need to be the same location that actual ACH files are sent to but rather a duplicate of the directory. Please contact MHM at 1-888-WINFLEX or Flexhelp@mhmbiz.com for details 12
FSE Scenario Demonstrations FSE Processing - Scenarios 1. Entering single claims with Current Plan Year dates of service basic FSE processing 2. Entering multiple claims, Current Year and Prior Year, for a single employee complex FSE processing. 3. Enter a Prior Year claim for a single employee that causes FSE Current Year claims to be reversed FSE Processing Notes 13
FSE Processing Scenario 1 1. Entering a single claim with Current Plan Year dates of service. In this scenario a single claim will be entered for a single employee. The employee used in the demonstration will have an available balance in the Prior Plan year. Along with demonstrating how this process works and is displayed to the user, a description of the FSE report is also provided NOTE: The FSE process in Winflex125 5.8.1 is automated. Claims entry in the FSE environment is no different that it was before. Enter all claims in the correct plan year (as determined by the dates of service) for the amounts claims. It is not necessary to separate claims by plan year or enter claim amount in anticipation of what can be paid from the Prior Plan year. Note Bill Tucker s FSA 2005 MEDFSA balance to be disbursed Because this employee has an election in the 2006 FSA MEDFSA benefit, the amount of $135.12 can be used to cover the following: o Claims that have dates of service in the Previous Plan Year and are entered into Winflex125 within the FSA 2005 Plan Year End Grace Period. o Claims that have dates of service in both the FSA 2005 FSE period and the 2006 FSA Current Year and are entered within the 2005 FSA Plan Year End Grace Period. Go to Claims Entry 14
FSE Processing Scenario 1 (continued) An FSE eligible claim is entered for an employee of the Regal Manufacturing o Based on the dates of service on the claim form the employee has submitted, the current plan is selected o The Service Dates are within the 2005 MEDFSA FSE period (1-1-2006 to 3-15-2006) o The transaction date (the date the claim is being entered) is within the 2005 FSA Plan Year End Grace period. o This employee has an election in a benefit MEDFSA that is FSE enabled for the 2005 plan year. o Close and Post this claim 15
FSE Processing Scenario 1 (continued) Select the batch Click Post Click Yes Click OK This message is returned automatically Note the file and path C:\ach file\batch3026.txt Click OK to close the message box 16
FSE Processing Scenario 1 (continued) Go to Windows Explorer on the local workstation Go to the path described in the FSE message Above is file that was exported by the FSE process o I have opened the file in Word Pad Here is what is reported in the order it is reported from left to right o Batch Number Batch #: 3026 o Company Code Company: REGAL o Plan Year Code Plan Year: 2006 o Employee Number Employee #: 3698522222 o Benefit Code Benefit Code: MEDFSA o Original Claim Amount Original claim amount: 25 The original claim amount that is provide will not consider rejected portions This report can be printed from Word Pad and or archived for future reference Go to the CSM and view Prior Year claims This is the Prior Year Claims view in the CSM for Bill Tucker Note the dates or service on the far right o The last claim listed has Current Plan Year dates of service and was moved back to the prior plan year by the FSE process Go to Prior Year Account Summary 17
FSE Processing Scenario 1 (continued) Note the Claimed to Date amount Of the $140.00 listed, $25.00 consists of Current Year claims that were rolled back to the Prior Year by the FSE process. To determine the dollar amount of FSE claims that can be rolled back to the prior year before the next disbursement run is made, subtract the Annual Election ($250.12) from Claimed To Disbursements will not be ran Go to Claims Entry for scenario 2 18
FSE Processing Scenario 2 2. Entering multiple claims complex FSE processing In this demonstration three claims will be posted simultaneously for one employee. The three claims will consist of two Current Year claims and one Prior Year claim. The goal is to show how 5.8.1 handles this common real world scenario. Note also that disbursements have not been ran since scenario 1 was completed. This simulates a weekly disbursement environment and or an environment with multiple claims processors. Three claims have been entered o Two are Current Year claims o One is a Prior year claim Post Expected Results Line 2 Prior Year claims for $75.00 will post to the Prior Plan Year o This claim will be processed first o This will increase the Claimed To Date balance in the 2005 plan year o This will have affect on the Current Year claims that can be rolled back by the FSE process Line 1 Current Year claim for $50.00 less a $25.00 rejection will post to the Prior Plan Year o This Current Year, FSE eligible claim, will process first because it has the earliest date of service Line 3 Current Year claims for $100.00 will be split between the Prior and Current Plan Years by the FSE process. o $10.12 will post to the Prior Year o $89.88 will post to the Current Year 19
FSE Processing Scenario 2 (Continued) OK Check the FSE report Note that both of the Current Year claims are listed on the FSE report This is true because both claims are affected Note that the original amount does not consider partial rejections Go to the CSM Note the claims with current plan dates of service The claim for $10.12 is the Prior Year portion that was split from a $100.00 current year claim Go to the Current Year 20
FSE Processing Scenario 2 (Continued) This is the remainder of the claim that was split by the FSE process Go to the Prior Year Account Summary Note that the Claimed to Date amount is now equal to the annual elections $60.12 of the Claimed to Date amount consists of Current Year claims that were rolled back by the FSE Process Go to Claims and run scenario 3 21
FSE Processing Scenario 3 3. FSE Reversal In scenario 3 FSE Current Year claims from the first two scenarios will be reversed to the Current Year because Prior Year claims are being posted. This will demonstrate how 5.8.1 handles Prior Year claims that are submitted after current year claims have already been applied to the Prior Year. Again, disbursements have not been run after scenario 2. Two Prior Year claims are entered Post There will be no FSE action or FSE reports create Go to the CSM Expected Results Line 1 - $50.00 Prior Year claim will post to the Prior Year and cause $50.00 worth of Current Year FSE claims to be reversed to the Current Year Line 2 - $25.00 Prior Year claim will post to the Prior Year and cause up to $25.00 worth of Current Year FSE claims to be reversed to the Current Year. 22
FSE Processing Scenario 3 (Continued) Note that all Prior Year claims in the last batch are posted Note that all claims with a Current Year date of service show $0.00 Scroll Right Note the Reversal is communicated in the Reference Information field Go to Current Year Claims 23
FSE Processing Scenario 3 (Continued) All of the claims that were previously posted to the Prior Year by the FSE process have now been reversed to the Current Year Scroll Right In the Reference information field you can see history of the claims Go to the Account Summary for the Prior Plan Year 24
FSE Processing Scenario 3 (Continued) Note that the account has been allowed to over-claim The claims that are over the annual election are Prior Claims No Current Year claims exist in this plan year No more Current Plan Year claims will be rolled back to the Prior Plan Year Go to the Current Year Account Summary Run disbursements for both plan year 25
FSE Processing Scenario 3 (Continued) Note the disbursement for TUCKER B This is the same as the Balance to be disbursed listed in the CSM Go to the 2006 Plan Year Note the payment for TUCKER B This is the amount of Current Year claims that was either split to the Current Year or Reversed back to the Current Year Post Run Employee Statements 26
FSE Processing Scenario 3 (Continued) Previous Year Employee Statement Note that $0.00 claims exist o These were Current Year Claims that were originally rolled back by the FSE process o They were reversed when Prior Year claims were posted on a later batch Go to Current Year Statement 27
FSE Processing Scenario 3 (Continued) Claims that were reversed forward to the current year appear on this statement They are attached to the Batch number that posted the Prior Year claim that caused the reversal 28