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VitaFlex Employee Guide: Important Plan Provisions

Why Does the Plan Have Rules and Restrictions?
The IRS provides significant tax breaks for participating in a Medical or Dependent Care Reimbursement Plan. The IRS allows this because they recognize the fundamental necessity of paying for certain medical and dependent care expenses and they believe that offering tax savings on these expenditures is appropriate. However, in exchange for the tax savings, the IRS does impose certain rules and restrictions on how you can use Medical or Dependent Care Reimbursement Plans, which are very important.

What Does “Use It Or Lose It” Mean?
The most important Plan restriction is the “use it or lose it” rule. You must carefully estimate your annual medical expenses and your annual dependent care expenses prior to your election. If you over-estimate your expenses and do not actually incur enough eligible medical or dependent care expenses during the Plan Year, the balance of your unused salary reduction contributions will be forfeited at the end of the Plan Year.

When Must I Incur Expenses?

All eligible expenses must be incurred during the specific Plan Year in which you have elected to participate. The Plan Year is January 1st through December 31st. Each employer outlines a specific claim submission deadline and in some cases an employer may adopt a grace period that extends the date for incurring claims
Eligible expenses must be incurred after your initial eligibility date if you are a new hire and after you have signed the election form.
Expenses incurred prior to the beginning of the Plan Year, prior to your initial effective date under the Plan, or after the end of the Plan Year are not eligible.
To ”incur” an expense means the date when the participant is provided with the care that gives rise to the expense, not when the participant is formally billed/charged or actually pays for the care. If your employment terminates, the rules for when eligible expenses must be incurred are different for Medical Reimbursement Accounts and Dependent Care Accounts:
For Medical Reimbursement Accounts, you may be reimbursed only for expenses incurred prior to your employment termination date. If you elect to continue your Medical Reimbursement Account under COBRA, the eligibility date for incurring expenses may be extended to the end of the Plan Year.
For Dependent Care Reimbursement Accounts, you may be reimbursed for expenses incurred after your termination, as long as the expense is work related and is incurred prior to the end of the Plan Year. You have until the specified claims submission deadline to submit claims for these expenses, assuming your employer’s Plan is still active. Please refer to your Summary Plan Description for information on your Plan’s claim submission deadline.

How Much Reimbursement Can I Receive?

For a Medical Reimbursement Account, the entire annual amount you elected is available to you for reimbursement immediately after your salary reductions start for that Plan Year.
However, you must continue to make contributions to your account throughout the remainder of the Plan Year.
For a Dependent Care Reimbursement Account, your reimbursements are limited to the amount you have contributed at any point in the Plan Year.

Can I Transfer My Balance between Medical And Dependent Care Accounts?
No. You must estimate and allocate your medical expenses and your dependent care expenses independently. If you incorrectly estimate your expenses, you cannot transfer your balance between your medical account and your dependent care account. Additionally, you may not transfer your balance to any other person or from one Plan Year to the next.

Does My Participation Affect My Social Security Benefits?
Yes. Your salary reductions through a Flexible Spending Account Plan will lower your taxable wages for future Social Security benefit calculations. This means you pay lower taxes for Social Security and other social benefit programs, but you will also receive commensurately lower future benefits. While participation in the Plan may lower your taxable income for Social Security purposes, generally the benefit difference received from Social Security will be minimal. If you are near your Social Security retirement age or anticipating any disability benefits, you may want to look closely at how a salary reduction might offset your future Social Security benefits.

Does My Participation Affect Other Benefits?
Participating in the Plan will reduce the amount of your taxable compensation. Accordingly, there could be a slight decrease in any employee benefits that are determined based on your taxable compensation. Examples of other benefits that might be affected are pension, disability and life insurance benefits.

Can I Stop Participating or Change My Salary Reduction During The Plan Year?
No, the general rule is that you cannot change or terminate your election during the Plan Year. You may change your elections only during the annual Open Enrollment Period for the upcoming Plan Year. There are several specific exceptions to this rule. You may change or terminate your election at any time during the Plan Year if you experience a qualified Change in Status or one of the other specific exceptions to the irrevocability rules as specified by the IRS. The rules about Election Changes and Status Changes are complex. More details are described on pages 10-11 of this Employee Guide and in your Summary Plan Description.

Can I Claim The Same Expense Twice?
No. It is important to understand that you may not submit a claim for reimbursement for any expenses that have been, will be, or have the potential to be reimbursed by any other source. All other potential reimbursement sources must be exhausted prior to a claim being eligible. Submitting expenses for duplicate reimbursement is considered tax fraud. Penalties for such fraud are severe and include payment of state and federal back-taxes, interest and penalties.

What Is A Plan Year?
The Plan Year is January 1st through December 31st. Each employer outlines a specific claim submission deadline and in some cases an employer may adopt a grace period that extends the date for incurring claims. Please refer to your Employer-specific plan documentation for these dates.