Feb. 13, 2013

Gideon School District

Cafeteria Plan (Section 125 Plan)

Plan Summary

The Gideon School District offers a Section 125 "Cafeteria Plan" to its employees (also known as a Flex Plan).  The plan provides the opportunity for employees to purchase certain types of insurance products and pay certain expenses with pre-tax dollars, thus saving the employee money.  Through the cafeteria plan, employees can contribute pre-tax dollars to a Flexible Spending Account (FSA).  There are two portions of the FSA.  The first portion is the medical account that can be used for unreimbursed medical, dental, and vision expenses along with certain over the counter medical products, equipment, and mileage to the doctor.  This portion is limited by the Affordable Care Act to a maximum of $2,500 per year. The second portion of the FSA is for dependent care costs.  Employees may hold back as much as $5,000 annually of their pre-tax salary for dependent care expenses, which include expenses they pay while they work, look for work or attend school full time. Qualified dependent care expenses may include--but are not limited to--the care of a child under the age of 13, long-term care for parents, and care for a disabled spouse or a dependent incapable of caring for himself. 

NOTE:  If you participate in a Health Savings Account (HSA) Health Insurance Plan, you cannot use the Cafeterial Plan for medical expenses.  Hence, we have a modified Section 125 Cafeteria Plan that will allow you to tax shelter dental and related vision costs.  

Effective July 1, 2010, the Gideon School District Section 125 Cafeteria Plan year will run from July 1 through June 30.  Employees must make their election for pre-tax insurance premiums to be paid, monthly medical FSA contributions, and dependent care FSA contribution during the employee sign up prior to July 1 of each year.  Every employee must participate in the enrollment but may decline any participation in the plan.  Changes in your contributions during the plan year or in your insurance options are not allowed unless certain specified "life change" events take place.  Those "life change" events are defined by the Internal Revenue Service.

Currently, the Gideon School District Section 125 Cafeteria Plan is administered by Forrest T Jones (FTJ).  Several voluntary insurance products are available through FTJ for purchase under this option.  Other insurance premiums, such as dependent health insurance premiums, can also be sheltered under the premium portion of the Cafeteria Plan.  Funds for the FSA are withheld from the employee paychecks as authorized by the employee on the annual agreement.  All funds committed to the medical reimbursement FSA are available immediately upon annual plan approval and funding.  Funds for the dependent care FSA are only available if such funds have already been deposited to the account. If excess medical reimbursement FSA funds are deposited in one plan year they may be used for expenses during the first three months of the following plan year.

The downside to a Cafeteria Plan is the "use it or lose it" requirement by the IRS.  Once you contribute money to the Cafeteria Plan, if you do not have enough offsetting expenses to utilize all contributed funds, you lose the funds remaining in the account.  This is an IRS requirement.  There has been a rule change that allows you to utilize fund contributed in a previous year during the first three months of the following year.  This helps minimize the "use it or lose it" risk, but you should still take case when determining how much to contribute to the Cafeteria Plan.  Effective January 1, 2011, you can NO LONGER purchase certain over-the-counter medications and supplies with FSA funds.  It is wise to check current IRS regulations before deciding how much to contribute to a FSA as the regulations change from time to time.  (Keep in mind that if you participate in a HSA Health Insurance plan, you cannot use the Cafeteria Plan for health related expenses.  Those would all run through your HSA).

Links to the various aspects of our cafeteria plan are available in the "Employee Links" page of the Gideon School District home page.

Additional information about the Gideon School District Section 125 Cafeteria Plan is available by contacting the Gideon School District central office.

How a Section 125 Cafeteria Plan Works

Prior to the beginning of each plan year, the employee estimates how much they may spend in out-of-pocket medical expenses and/or dependent care expenses during the course of the plan year.  It is important for employees not to overestimate their annual election amounts, as the FSA is a "use it or lose" benefit and the employee will forfeit any unused balance remaining in the account at the end of each plan year.  (There is a grace period for which an employee can file claims for each play year and employees can fund up to 3 months of the following year expenses from the previous year contributions.)  If there is a surplus in the FSA at the end of the plan year, the remaining balance is retained by the employer to offset administrative expenses or future employee benefit costs.

This amount is then deducted over the course of the plan year from their paychecks prior to being taxed and is deposited into their FSA (flexible spending account).  On or after the first day of the plan year, the employee cannot change or revoke the section 125 agreement with respect to pre-tax premiums until the plan year has ended unless a "change in family status" occurs (as defined by the IRS) and the change is consistent with the "change in family status."

The employee would then pay their out-of-pocket expenses upfront and submit a claim with necessary documentation to the plan administrator.  The plan administrator for the FSA for the Gideon School District is through Forrest T Jones (FTJ).  Flex Plan Reimbursement forms and a link to the FTJ site are available on the Gideon School District Human Resources Links page.  After the claim and necessary documentation is verified, reimbursement is then made from the employees FSA account with pre-tax dollars.  Currently reimbursement checks are mailed to the district and distributed to the employee.

During the annual enrollment period all employees meet with qualified representatives to discuss the cafeteria plan options and to make their elections for the plan year.  At this time employees can select voluntary insurance premiums they want processed through the Cafeteria Plan.  These premiums would then be paid with pre-tax dollars.  Examples of qualifying insurance premiums include, but are not limited to: dependent health insurance premiums, cancer policies, accident and injury policies, disability policies, etc.  Employees would also make their elections for their medical FSA and/or their dependent care FSA.

Benefits of a Section 125 Cafeteria Plan

The main benefit of a Section 125 Cafeteria Plan is that it allows employees to pay for certain expenses with pre-tax dollars. This can be a significant savings to the employee.  In general, the higher the income tax bracket for your family, the greater your realized savings will be.