Flexible Spending Account

Question 1

Flexible Spending Account

Answer 1

A type of cafeteria plan that is funded by the employee through pre-tax salary reductions

Question 2

When does an employee elect if they want to participate?

Answer 2

Prior to the start of each plan year

Question 3

When must the employee declare the salary reduction amounts?

Answer 3

In the year before compensation is actually earned

Question 4

Who holds and administers the deposited pre-tax salary deductions?

Answer 4

The company or third party

Question 5

When is a FSA indicated? (3)

Answer 5

1. Employer want to expand employee benefits while limiting additional costs
2. Due to increase costs, must impose additional employee cost sharing
3. Employer has sufficient amount of employees

Question 6

How many employees is sufficient for a FSA?

Answer 6

Usually 25 or more however can be considered for as few as 10

Question 7

Who decides what benefits to provide in an FSA?

Answer 7

Employer

Question 8

What does the employer advise the employees to do near each year end?

Answer 8

Review their benefit needs and estimate their next year’s “covered” expenses

Question 9

Before year end, what must the employee do in writing?

Answer 9

Elect to reduce salary and allocate amount between different plan benefits

Question 10

What does each employee keep a record of?

Answer 10

“covered” expenses in each benefit catagory to make claim on the FSA plan for reimbursement

Question 11

The employer or 3rd party isses ____ _____ to the employee for “covered” expenses incurred

Answer 11

reimbursement check

Question 12

Any _____ from the previous year that are not used by _____ of the following year are _____

Answer 12

amounts; 3/15; forfeited

Question 13

Advantages of FSA (4)

Answer 13

1. Gives employee choice using pre-tax dollards
2. funded through employee salary reductions
3. payroll tax reduced
4. many potential nontaxable benefits that would not otherwise be available (ie. dependent care)

Question 14

Disadvantages of FSA (6)

Answer 14

1. complex, nondiscrimination requirements
2. administrative costs increase
3. Requires employees to evaluate their own benefits which can be confusing
4. Employees can only change FSA contributions during the year based on certain circumstances
5. IRS proposed regulations require an employer to be “at risk” regarding amount employee elects to allocate

Question 15

Generally, complex nondiscrimination rules are met if: (2)

Answer 15

1. Employees are allowed to participate

2. Benefits, as percent of compensation, are approximately equal for all employees

Question 16

The cost of noncompliance is _______ of the plan as a whole

Answer 16

NOT disqualification

Question 17

Allowable benefits are the same as cafeteria plans and include:(3)

Answer 17

1. Medical and dental reimbursement for items including ones not covered by health isnurance plan (co insurance pmts, copats, deductibles, eye glasses, physicals and orthodontia work)
2. Care of dependent child under 12
3. Care of dependent physically/mentally disabled who cannot care for themself and lives in tax payers home

Question 18

Non-allowable benefits include: (8)

Answer 18

1. Health insurance premiums
2. Archer Medical Act Savings Acct contributions
3. Scholarships or fellowships
4. Educational assistance
5. Employee discounts
6. Deferred compensation
7. Long-term care insurance
8. Cosmetic surgery

Question 19

You can only change you designated contributions during the year when..(4)

Answer 19

1. marital status changes
2. have or adpot a child
3. spouse or child dies
4. spouse loses job

Question 20

What taxes do NOT apply to employee salary reductions that are applied to nontaxable benefits? (4)

Answer 20

FIT, SS, medicare payroll tax, state income tax

Question 21

Does the employer get a tax deduction for amounts paid to reimburse employees?

Answer 21

yes

Question 22

The employer’s payroll is reduced by the amount of any employee salary reductions under an FSA including: (4)

Answer 22

1. FICA
2. FUTA
3. SUTA
4. Worker’s compensation insurance

Question 23

What 3 things does the IRS not allow?

Answer 23

1. plan to return unused funds at the end of ther plan year
   2, monies carried from one plan year to another
2. monies to be transferred from one account to another

Question 24

What are the ERISA requirements?

Answer 24

Written plan
Summary plan description
formal claims procedure