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GENERAL
1. Who is my plan administrator?
Your plan administrator is the individual at your current/former place of employment that handles the day to day operation of your retirement plan. Any and all inquiries regarding your retirement plan should be directed to this individual.
2. Who is Associated Pension Consultants, Inc.?
Associated Pension Consultants, Inc. is a Third Party service provider employed by our clients for the purpose of consultation and administration.
3. What is a Summary Plan Description?
The Summary Plan Description, or SPD, is an outline of the features of your retirement plan. As the SPD is a valuable tool for your understanding of the functions of your retirement plan, you may wish to review it for clarity. You may request a copy of your SPD from your plan administrator.
Distribution of Benefits
1. How do I request a distribution of my vested benefits?*
In order to initiate a request for distribution of your vested account balance, you must complete the applicable forms. The necessary forms are available on this web site in the Form Download section. You may fax your completed request to our Distribution Department at 516-364-0214.
Please note that all inquiries thereafter must be directed through the plan administrator at your former/current place of employment. For the protection of our clients, the company policy of Associated Pension Consultants, Inc. strictly prohibits members of our staff from communicating directly to plan participants. We apologize for any inconvenience.
*Exceptions apply to requests from Aetna MAP Plus contracts.
2. Under what conditions can I withdraw funds from my retirement account?
While ultimately depending on the provisions of the documentation governing your retirement plan, a distribution of benefits may be requested by the following:
- Terminated Participants: Those no longer employed by the company sponsoring the retirement plan.
- Participants Who Have Reached the Normal Retirement Age: Those participants who have attained age 59 1/2.
- Participants Who Have Reached the Plan Specified Early Retirement Age: Those participants who have attained the early retirement age set forth by the provisions of their retirement plan. If you believe you may be eligible for early retirement, please contact your plan administrator as not all plans contain such provisions.
- Active Participants With Balances Attributable To Employee Rollover: A participant who has rolled funds into the plan from their prior retirement vehicle may be eligible to withdraw those funds prior to the normal retirement age.
- Participants Satisfying The Qualifying Reasons For A Hardship Withdrawal: Those participants who are able to present a case qualifying a true financial hardship.
3. What are the qualifying reasons for a hardship withdrawal?
In accordance with IRS regulations, a participant may apply for an in-service withdrawal based upon financial hardship. The qualifying reasons are as follows:
- Purchase of a primary residence
- Educational expenses for the next quarter or semester of post-secondary education for oneself, one's spouse, one's child (children) or other dependent(s)
- To prevent eviction from, or foreclosure on, one's principal residence
- Medical expenses for oneself, one's spouse or one's dependents
Please be aware that the plan administrator is the final arbiter for certifying participant applications in all cases. Associated Pension Consultants, Inc. will make no such determinations.
4. How soon can I expect to receive a check for my distribution of benefits?
In reference to the timeliness of the processing of participant withdrawal requests, it is the internal policy of Associated Pension Consultants, Inc. to have a turnaround time of one business day.
Unfortunately, our policy is not the sole determinant of the length of the withdrawal process. By taking into account the time necessary for our affiliated investment companies to process the participant request, and the time necessary for the participant (or financial institution) to receive payment, we estimate the total time for this process to be 7 to 10 business days.
LOANS
1. Are loans available through my retirement plan?
Your plan likely includes a participant loan program. You can verify this through either your Summary Plan Description or your plan administrator.
2. How is the interest rate for loans calculated?
The calculation method of the loan interest rate for your retirement plan is outlined in your Summary Plan Description. Generally, this rate will be calculated by adding a predetermined fixed amount to the prime interest rate.
3. How is the prime interest rate for loans determined?
The prime interest rate, which is applicable to the participant loans available through your retirement plan, is a variable rate set forth by the Federal Reserve Board. For reference, this rate is published daily in The Wall Street Journal.
4. Is rate of interest constant throughout the life of my 401(k) loan?
Yes, the rate of interest is constant throughout the life of your 401(k) loan.
5. Can I re-amortize my outstanding loan balance?
Yes, you may re-amortize your outstanding loan balance in order to consolidate multiple loans or take advantage of a better interest rate. However, the term of your re-amortized loan may not exceed the duration of the original loan(s).
6. What is the maximum loan available to me?
The maximum loan availability for your retirement plan is outlined in your Summary Plan Description. In addition, many retirement plans also include requirements for minimum loan amounts. Again, to learn more about your participant loan program, please consult your Summary Plan Description.
IRS guidelines provide that the maximum loan available is the lesser of 50% of the participant's vested account balance or $50,000.00. In the event that the participant requesting the loan already has an outstanding loan balance, the amount of that outstanding loan will reduce the balance available for the subsequent loan.
7. How often are loan repayments to be made?
Loan repayments are made via deductions from a participant's paycheck and should be applied with each payroll.
8. How are loan repayments made?
The loan repayment deductions should be arranged for by your company's payroll administrator. You should be aware that unlike participant salary deferral contributions, loan repayments are deducted post-tax.
9. What is the maximum term for a participant 401(k) loan?
Under normal circumstances, the maximum term for a participant loan is 5 years. Your plan's participant loan program may allow for extended terms of up to 20 years for those purchasing a primary residence. Please check your Summary Plan Description for details.
10. Can I make lump sum repayments on my outstanding loan balance?
Lump sum payments towards a 401(k) loan can only be made if the participant is paying off the entire outstanding balance of a participant loan. Also, please note that loan repayments should always be made in the amount specified on the promissory note and amortization schedule for the participant loan. No alterations should be made to the prescribed repayment amount.
11. Are there any limitations on the number of loans outstanding at any one time?
Some plans do contain provisions limiting the number of concurrent outstanding participant loans. You should check your Summary Plan Description for details.
12. How should I administer my outstanding loan?
It is advisable for a participant with an outstanding loan to record each repayment deducted at the time of the deduction. By doing so, the participant will be able to personally monitor his or her outstanding loan balance.
13. How soon can I expect to receive the check for my loan?
Much like our policy regarding the timeliness of our processing of other participant requests for distribution of benefits, it is the goal of Associated Pension Consultants, Inc. to maintain a turnaround time of one business day.
However, since payment of our loan origination fee is required in order to initiate the loan request process, our one business day turnaround period will begin only upon our receipt of payment of the origination charge.
Finally, our policy is not the sole determinant of the length of the withdrawal process. By taking into account the time necessary for our affiliated investment companies to process the participant request, and the time necessary for the participant (or financial institution) to receive payment, we estimate the total time for this process to be 7 to 10 business days.
TAX CONSEQUENCES
1. What are the tax consequences associated with the distribution of my benefits?
Depending on the form of distribution chosen and the age of the participant, there are different tax scenarios that may apply. Should a participant elect to receive a direct payment, mandatory IRS withholding of 20% will apply. In addition, if the participant has not attained age 591/2 an IRS penalty of 10% will apply. Regardless of the amounts withheld at the time of a distribution, the full tax consequence will ultimately be decided upon the completion of the participant's personal tax return. Should a participant elect to receive a rollover to either and IRA or another qualified retirement plan, there are no penalties and no IRS withholding applicable.
2. What are the tax consequences associated with a hardship withdrawal?
The tax consequences of a hardship withdrawal are similar to those described above, excepting that these funds cannot be rolled over and IRS withholding on funds withdrawn from Salary Deferral accounts is not mandatory at the time of distribution.
3. What are the tax consequences associated with a participant loan?
A participant loan withdrawal is a non-taxable event. However, please note that a participant's loan repayments are deductions made post-tax. In the event that a participant loans is considered to be in default, the outstanding balance at that time will be considered a taxable distribution. This event will be reported via IRS Form 1099-R and the participant will be required to include the amount as income on his or her personal tax return.
ANNUAL REPORTS
1. What is the ADP/ACP Test (discrimination testing)?
The amount of contributions under a plan must not discriminate in favor of highly compensated employees. The amount of elective contributions under a 401(k) plan is not considered discriminatory if the plan satisfies the actual deferral percentage (ADP) test. Similarly, any employer matching contributions are not discriminatory in amount if the plan meets the actual contribution percentage (ACP) test.
The ADP/ACP test holds that the average percentage of pay deferred by the highly compensated employees (HCE) cannot exceed the "adjusted" average percentage of pay deferred by the non-highly compensated employees (NCE).
To calculate this adjusted average percent of pay deferred we must first calculate the average deferral percent (DP) for the NCE group. This value is simply the average of all NCE individual deferrals over their individual pays. The adjusted average is then defined as the greater of:
- 125% of the NCE Group's DP; or
- the DP of the NCE group increased by two percentage points, with a maximum ceiling equal to 200% of the DP of the NCE group.
If the DP of the HCE Group is less than or equal to this adjusted value, the Plan satisfies the requirement.
2. How do highly compensated employees report the return of excess contributions due to a failed discrimination test?
The amount of the remedial distribution will be reported as taxable income on Form 1099-R. Form 1099-R will be issued in the calendar year subsequent to the plan year in which the infraction occurred. The form itself will be issued to indicate that the participant has received the remedial amount in the subsequent calendar year, but that the amount is taxable for applicable plan year. For the participant, he or she must include the remedial amount on his or her personal income tax return for the year that the infraction occurred. Please note that FICA tax has already been withheld at the time of the salary reduction and minimum withholding requirements are not applicable to this type of income.
Example:
If a participant receives a remedial distribution for the 2001 plan year, he or she will receive payment in January 2002. The payment must be claimed on the participant's 2001 personal tax return, though the participant will not actually receive a copy of Form 1099-R until early 2003.
If applicable, the participant will be consulted regarding funds from which the distribution should be made. If so, advisement will be required upon request. Otherwise, the distribution will be charged in a manner based upon level of market risk as the Trustee understands. Compliance deadlines require no delay be allowed.
3. What is the Top Heavy Test?
A Top Heavy Test determines whether the present value of accrued benefits for key employees is more than 60% of the total assets held in the plan. If a plan is considered to be Top Heavy than a minimum funding contribution is required on behalf of all non-key employees.
4. What is family aggregation and family attribution?
In past years, lineal ascendants and descendants of owners, key employees and other HCE's were considered one employee for purposes of Discrimination testing. Beginning in 1997, Family Aggregation has been repealed. However, family attribution rules of Internal Revenue Code Section 318 still apply. Therefore, spouses, parents and children of owners are still considered as owners for purposes of discrimination and top heavy testing.
5. What is the difference between employer matching and profit sharing contributions?
Employer matching contributions and profit sharing contributions are both employer contributions made into the plan on behalf of its participants. However, they differ in the calculation of the contribution amount for each.
Employer matching contribution amounts depend on the elective contribution made by each individual participant in a given plan year. An example of this would be a plan that makes a matching contribution of 25% of any elective contributions. Therefore, if a participant elected to contribute $1,000.00 from their salary into the 401(k) plan the employer would contribute $250.00 on their behalf.
Profit sharing contribution amounts depend on the compensation earned by a participant in a given plan year. An example of this would be a plan that makes a profit sharing contribution that is 3% of a participant's W-2 compensation for the plan year. Therefore, if a participant earned $50,000.00 the employer would make a profit sharing contribution in the amount of $1,500.00.
6. What are the deadlines for the filing of IRS Form 5500?
The IRS deadline for the filing of Form 5500 is seven months after the plan yearend. Therefore, if you have a calendar plan year the deadline for filing is July 31st.
7. Can I file for an extension of time for the filing of IRS Form 5500?
Yes, the IRS allows for a 21/2 month extension for the filing of IRS Form 5500.
8. What are forfeitures? How can I utilize forfeited funds?
Whenever a terminated participant requests a distribution of benefits from a plan, all non-vested employer assets are transferred to a forfeiture account within the plan. These forfeited assets can be used toward future employer contributions in the following two ways:
- Forfeitures used to reduce employer contributions - any future employer contributions can be reduced by assets held in the forfeiture account. For example, an employer has to contribute $10,000.00 on behalf on its employees. The forfeiture account has a balance of $2,000.00. The employer can contribute $8,000.00 and use $2,000.00 from the forfeiture account.
- Forfeitures used to increase employer contributions - any future employer contributions can be increased by assets held in the forfeiture account. For example, an employer has to contribute $10,000.00 on behalf on its employees. The forfeiture account has a balance of $2,000.00. The employer can contribute $10,000.00 and $2,000.00 in the forfeiture account will be allocated to participants thus making the total contribution $12,000.00.
YEAR-END DATA REQUEST
1. Why do we need to complete a data request package?
The IRS regulates that all Qualified Plans (i.e. 401(k), Profit Sharing, Money Purchase, etc.) file 5500 Tax Forms and complete discrimination testing on an annual basis. In order for us to provide this service to our clients we require plan information. Our Data Request Package has been designed to make its completion by the plan administrator straightforward as well as comprehensive.
2. What is the deadline for completing the Data Request Package?
Associated Pension Consultants, Inc. asks that the Data Request Package be returned to our office no later than one month after your plan yearend. We request the information at this time in order to ensure that all IRS regulation testing is completed in a timely manner. The IRS mandates that any necessary yearend adjustments are to be completed within a 21/2 month time span from the plan yearend. Any adjustments completed after this time will incur a 10% penalty on excess contributions made to the plan.
3. How do I obtain a copy of our Yearend Data Request Package?
Associated Pension Consultants, Inc. mails a Yearend Data Request Package to all of our clients one month before their plan yearend. In addition, a copy of the package is available in the "Form Download" section of our website.
4. Who is a highly compensated employee?
For the 2001 Plan Year, a participant is considered a highly compensated employee if he meets one of the three following criteria:
- The participant received compensation in the amount of $85,000.00 or more during the 2000 plan year.
- The participant is greater than a 5% owner anytime during the plan year.
- The participant is a lineal descendant of 5% owner. (i.e. spouse, mother, son, etc.)
For the 2002 Plan Year, any participant earning $85,000.00 or more during the 2001 plan year will be considered a highly compensated employee.
5. Who is considered a key employee?
A key employee is any employee (including any deceased employee) who at any time during the plan year is a:
- 5% owner or more
- 1% owner having compensation from the employer greater than $150,000
- Top ten owner
- Company officer
6. When do I need to complete a 1099-R form?
The IRS requires that a 1099-R is filed in a given plan year whenever a terminated participant takes a direct payment of their account or a loan is defaulted (i.e. no repayments made for 90 days). Your insurance provider will take care of 1099-R filing in most cases. However, the following are reasons why you would request Associated Pension Consultants, Inc. to complete a 1099-R for a participant in your plan:
- A participant defaults on a loan and has not yet requested a distribution of benefits
- A participant received a distribution of benefits and your plan assets are in a pooled account
7. What does "compensation as defined by plan" mean?
Compensation as defined by plan is the earnings for a new participant from the date of eligibility to the end of the plan year.
8. What is a receivable report and why is it needed?
A receivable report is a breakdown by participant of any contributions submitted for a given plan year that are contributed to your fund company after the plan yearend. For example, if your plan runs on a calendar plan year, most commonly the last payroll in December does not get contributed until early January of the following plan year. Your annual statements will not reflect this contribution, however all contributions must be accounted for when file your 5500 Tax Forms. Therefore, we must use this report to reconcile your annual statements for your fund company to the balances that must be submitted to the IRS on the 5500 Tax Forms.
9. Which employees need to be included on the employee census spreadsheet?
All employees receiving W-2 compensation for the given plan year need to be included on the spreadsheet regardless of whether they are eligible to contribute into the plan. Any omission of employees may skew test results and incur IRS penalties upon audit.
10. How do I complete the employee census spreadsheet?
For a complete explanation to this question please refer to the "Forms Download" section of our website and download the "Employee Census Spreadsheet Instructions."
LEGAL/LEGISLATIVE
1. What is a "controlled group"?
A controlled group of companies exists when there is common ownership of 80% or greater of each company. There are special regulations regarding the operation and administration of retirement plans sponsored by companies that are members of a controlled group. As a plan trustee, if you believe your company may be a member of a controlled group and you have not yet notified our office, please do so immediately.
2. When can I begin contributions to my 401(k) plan?
Each retirement plan has different provisions governing participation. These provisions are outlined in the Summary Plan Description. Upon completion of the eligibility requirements, a participant may begin contributions on the following entry date.
3. What is an "entry date"?
An entry date is the specific date upon which new participants may commence their elective contributions. Please consult you Summary Plan Description for more details.
4. How do I request changes to my plan documentation?
The trustees of a plan may wish to periodically make changes to the operation of the retirement plan. In order to do so, Associated Pension Consultants, Inc. must amend your existing plan documentation to reflect the desired changes. For Associated Pension Consultants, Inc. to amend your plan documentation, please notify us, in writing, of both your intended changes and the date you wish for them to be effective. Please note that only a trustee of the plan can request such changes.
SAFE HARBOR PROVISIONS
1. What is a safe harbor plan?
A safe harbor 401(k) plan is a 401(k) plan under which an employer will no longer be required to perform nondiscrimination testing of elective contributions or matching contributions. To land within the safe harbor, a 401(k) plan must meet certain employer contribution requirements and must provide for 100 percent immediate vesting of these contributions.
Required is that participants receive advance written notice of a safe harbor plan will affect the determination of when a safe harbor 401(k) plan can be adopted. Each eligible employee must be given written notice of rights and obligations under the safe harbor 401(k) plan within a reasonable period before the beginning of the plan year or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible. Giving such notice at least 30 days and no more than 90 days before the beginning of each plan year (for employees entering the plan on a day other than the first day of the plan year, during the 90-day period ending on the date of entry) is deemed to satisfy the timing requirement.
By adopting a safe harbor 401(k) plan, a plan sponsor can avoid ADP testing of elective contributions and ACP testing of matching contributions. The ADP and ACP tests are used to determine whether the amount of elective contributions and matching and after-tax contributions discriminates in favor of the Highly Compensated Employees.
Generally speaking, employers that might benefit from a safe harbor design include the following:
- Employers with highly paid employees who are unable to contribute the full 401(k) dollar amount because of low participation rates of the lower-paid employees.
- Employers already making (or planning to make) employer contributions at or near the safe harbor levels.
- Employers required to make top-heavy minimum contributions.
- Employers with plans using a cross-tested profit sharing formula.
- Employers with a relatively low employee turnover.
Under a safe harbor 401(k) plan, an employer can elect to provide either of the following contributions:
- A dollar-for-dollar match on elective contributions up to 3 percent of compensation and a 50 cents-on-the-dollar match of elective contributions between 3 percent and 5 percent of compensation.
- A 3 percent of compensation non-elective contribution.
Other matching formulas can satisfy the safe harbor provisions. If the aggregate amount of matching contributions under an enhanced matching formula at any given rate of elective contributions is at least equal to the aggregate amount of matching contributions that would be made under the basic matching formula, then the alternative formula will satisfy the safe harbor. An alternative formula will not satisfy the safe harbor, however, if the rate of matching contribution increases as the rate of elective contribution increases or if, at any rate of elective contributions, the rate of matching contributions that would apply with respect to any Highly Compensated Employee (HCE) who is an eligible employee is greater than the rate of matching contributions that would apply with respect to a Non-Highly Compensated Employee (NHCE) who is an eligible employee and who has the same rate of elective contribution.
A plan that satisfies the ADP test safe harbor will also satisfy the ACP test safe harbor if any of the following are true:
- The plan provides safe harbor matching contributions using the basic matching formula and no other matching contributions are provided under the plan;
- The plan provides safe harbor matching contributions using an enhanced matching formula under which matching contributions are only made with respect to elective contributions that do not exceed 6 percent of the employee's compensation and no other matching contributions are provided under the plan; or
- The plan provides matching contributions, other than safe harbor matching contributions, and (a) the matching contributions are not made with respect to employee contributions or elective contributions that in the aggregate exceed 6 percent of the employee's compensation, (b) the rate of matching contributions does not increase as the rate of employee contributions or elective contributions increases, and (c) at any rate of employee contributions or elective contributions, the rate of matching contributions that would apply with respect to any HCE who is an eligible employee is no greater than the rate of matching contributions that would apply with respect to an NHCE who is an eligible employee and who has the same rate of employee contributions or elective contributions.
A plan that satisfies the ADP test safe harbor with matching contributions under the basic matching formula or an enhanced matching formula will not cause the ADP test safe harbor to be failed merely because additional matching contributions may be made at the employer's discretion. The plan will fail to satisfy the ACP test safe harbor, however, if the plan provides for discretionary matching contributions on behalf of any employee that, in the aggregate, could exceed a dollar amount equal to 4 percent of the employee's compensation.
An employer that provides a safe harbor matching contribution could also make a profit sharing contribution to the safe harbor 401(k) plan.
A 401(k) plan using a safe harbor match formula can be amended during the plan year to reduce or eliminate matching contributions. Employees must be notified beforehand of the amendment and be given an opportunity to change their deferral elections. The amendment cannot be effective earlier than 30 days after the plan is amended and notice is given. ADP and ACP testing will apply to all elective and matching contributions made during the plan year.
A safe harbor 401(k) plan must provide that the safe harbor matching or 3 percent-of-compensation non-elective contribution be 100 percent vested immediately. Any other employer contributions to a safe harbor 401(k) plan can be made subject to a vesting schedule.
A safe harbor 401(k) plan can have minimum age and service requirements that must be met before an employee can become a participant. Once an employee has satisfied any minimum age and service requirements, the employer must make the required contribution whether or not the participant is employed on the last day of the plan year or has completed 1,000 hours of service during the plan year.
Any definition of compensation that satisfies IRS Code Section 414(s) can be used for purposes of determining safe harbor matching and non-elective contributions; provided, however, a definition of compensation that excludes all compensation in excess of a specified dollar amount cannot be used. An employer may limit the period used to determine compensation for a plan year to that portion of the plan year in which the employee is an eligible employee, provided that such a limit is applied uniformly.
Safe harbor contributions can be made at any time during the plan year and thereafter until 12 months after the end of the plan year. If, however, an employer wants to satisfy the match safe harbor in a payroll-by-payroll basis rather than on a plan-year basis the matching contributions must be made no later than the last day of the following plan year quarter.
Although a safe harbor 401(k) plan is not exempt from the top-heavy rules, the 3 percent-of-compensation non-elective contributions made to meet the safe harbor can be credited toward an employer's top-heavy minimum contribution obligation. In contrast, the safe harbor matching contributions to a top-heavy safe harbor 401(k) plan cannot be used to help satisfy a minimum contribution obligation.
In-service withdrawals of safe harbor matching and non-elective contributions are only permitted in some circumstances. Safe harbor matching and non-elective contributions are subject to withdrawal restrictions. In-service withdrawals of safe harbor matching and non-elective contributions may be allowed on or after age 591/2. In-service withdrawals of safe harbor contributions on account of financial hardship cannot, however, be permitted.
Employees covered by a safe harbor 401(k) plan may also be covered under another qualified retirement plan maintained by their employer. Further, safe harbor contributions may be made to another defined contribution plan as if the contribution were made to the safe harbor 401(k) plan.
MID-YEAR TESTING
1. What is the purpose of "mid-year testing"?
As part of our standard service Associated Pension Consultants, Inc. offers a midyear testing of your retirement plan. This midyear testing is important for top heavy and discrimination testing. At midyear, we will perform the necessary top heavy and discrimination testing based on annualized numbers. This enables us to advise as to any adjustments that need to be completed in order to avoid a plan failure at yearend.
2. Is mid-year testing mandatory?
No, midyear testing is an optional service provided by Associated Pension Consultants, Inc.
3. Do administrative charges apply to mid-year testing?
No, mid-year testing is a standard service provided by Associated Pension Consultants, Inc.
PLAN TERMINATION
1. How does a plan trustee discontinue a retirement plan?
In the event that the trustees of a retirement plan wish to discontinue the operation of a retirement plan, they may do so by notifying our office of their intention in writing. Upon our receipt of this notification, we will be able to provide the trustees with further instruction regarding the plan termination process.
We would like to note that plan termination is a lengthy and time consuming process that should be undertaken only in cases where it is absolutely necessary.
2. I am a participant of a terminating plan. When can I withdraw my funds?
Participants of terminating plans will be allowed to withdraw their funds only upon the completion of all plan termination proceedings. However, participant requests for distribution of benefits may be submitted prior to the completion of the plan's termination. These requests will be processed promptly upon the completion of the plan termination.
3. My former employer has closed its doors. What is the status of my account?
If you are an employee or former employee of a firm that no longer exists and you are interested in receiving a distribution of your benefits, you must contact the plan trustee. Associated Pension Consultants, Inc. cannot process any requests without trustee authorization, nor can we authorize any withdrawals ourselves.
CAFETERIA PLANS
1. Why should I participate in the accounts?
If you want to get a tax break to pay for your health care and dependent care expenses with pre-tax dollars, the Flexible Spending Accounts are a good way to do that. The KEY is careful planning. Generally, it may be to your benefit to underestimate your expenses and put a little less in the account than you know you will need to avoid any chance of forfeiture.
2. If I decide to participate in both medical and dependent care accounts, can I switch money from one account to another during the year?
No, IRS regulations require that the two accounts remain separate.
3. Do I have to have prior approval for expenses?
No, your expenses are eligible as long as they are considered tax deductible by the IRS.
4. How can I fund out with expenses are eligible?
IRS Publication #502 lists eligible health care expenses and Publication #503 lists day care expenses. These publications are available from the IRS and can be found on their website: www.irs.gov.
5. Can payments be sent directly to the doctor or day care center?
No, as required by law, the payment must be made directly to you.
6. What if I have more expenses during the year than I have allocated in my account?
You will pay the remaining expenses as you have in the past-with after tax dollars.
7. What if I have less expenses during the year than I have allocated in my account?
Any remaining money in your accounts will be forfeited and paid to the employer. It is very important that you plan carefully to avoid this.
8. Is there a maximum contribution?
There is a $5,000.00 maximum annual contribution for the Dependent Care Account, unless you are married and filing an individual tax return, then the limit is $2,500.00. The maximum annual contribution for the Health Care Account is different for every plan, please see your plan administrator. You may contribute the maximum amount to both accounts, if you choose.
9. Is there a minimum contribution?
No.
10. How do I save tax money by using the accounts?
The money you put in a Flexible Spending Account comes out of your paycheck before most taxes are taken out. Then, when you submit a claim to be refunded for an expense, you get reimbursed tax-free. This way you don't pay taxes on the money you set aside in your spending accounts. Remember, you cannot participate in the Spending Accounts and use the deduction on your tax return. It is one or the other.
11. Can I change the amount of my deposits during the year?
No, the only way the amount can be changed during the year is if you have a change in family status such as marriage, divorce or legal separation, birth or adoption of a child, death of a spouse or dependent or termination of your spouse's employment or significant change in your spouse's coverage attributable to a change in your spouse's employment.
12. When can I start participating in the plan?
You can start participating in the plan as of your hire date; however, you only have 30 days after your date of hire to make the decision to participate in the plan. If you do not decide within that time period, you have to wait until the beginning of the next plan year before you can start participating and that decision must be made prior to the beginning of the plan year.
13. How is the Health Care Account different from deducting medical expenses on my tax return?
Under current law, you can only take a tax deduction on your return for health expenses which exceed 7.5% of your adjusted gross income.
14. My spouse is employed and is covered by medical insurance from his/her company. Can I claim his/her deductible and coinsurance for payment through the Health Care Account?
Yes, you may submit expenses for your spouse just as you would submit expenses for yourself. However, you cannot submit bills for charges reimbursed by another plan.
15. Can I use the Dependent Care Account to pay for nursing home expenses?
No, the laws making Dependent Care Accounts possible specifically excluded nursing home expenses.
16. Can I carry money left over in either account into the next year?
No, not under current law.
17. How often can I file a claim?
You may file claims as often as you wish. Reimbursement checks will be sent to you once a month.
18. What if my reimbursable expenses exceed what is in my account at the time I request payment?
In the Dependent Care Account you can only be reimbursed for up to the balance in your account. However, in the Health Care Account you can submit claims for payment and you will be reimbursed up to any amount so long as it does not exceed your annual contribution. Your employer will recoup overpaid expenses from future contributions.
19. How can I keep up with how much is in my account?
You will be sent a quarterly balance statement.
20. What if I have medical services in December but don't get a bill until after the year ends?
You may submit claims until March 31st of the next year for expenses incurred during the previous year.
21. What if I leave employment during the year?
Your deposits will stop but you can continue to submit claims through the end of the plan year or until your balance is used up for expenses which were incurred prior to termination. In addition, you may continue to participate in the Health Care Account only under COBRA by remitting 100% of the amount elected in after-tax dollars.
22. What do I need to submit with the claim form?
Evidence of health care or dependent care expenses must be submitted with the claim form. Also, you must submit a tax ID or social security number for each child caretaker that you use.
23. What will be done with the account funds that are forfeited at the end of the year?
The remaining account funds may be used to pay out medical reimbursements to employees in the next plan year prior to sufficient accumulation of funds in the accounts. IRS guidelines do not allow excess money left in your account(s) at the end of the reimbursement period to be returned to you.
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