BSI Administrative Services: FAQs

Myths/Facts

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What is a Cafeteria Plan?
What are the basic benefit programs available?
What is the Premium Only Plan ("POP")?
What is the Flex Plan (Flexible Spending Arrangements)?
What is the TFA Plan (Transportation Fringe Accounts)?
What is the Healthcare Premiums account?
What is the Unreimbursed Healthcare account?
What are allowable expenses for the Unreimbursed Healthcare Expenses account?
What is the Child/Dependent Care account?
What are allowable expenses for the Child/Dependent Care account?
What is the Mass Transit account?
What are allowable expenses for the Mass Transit account?
What is the Parking Expenses account?
What are allowable expenses for the Parking Expenses account?
Do I have to join?
How do these accounts affect other benefits provided?
What are the advantages of providing these benefits pre-tax?
What will the Flex Plan cost?
Will the money that is not yet claimed earn interest?

What is a Cafeteria Plan?
A “Cafeteria Plan” is an umbrella for a group of employee benefit programs where eligible employees choose to participate and thus defer cash compensation. The IRS rules allow employees to use pre-tax dollars for payroll deductions for several of these programs; others can be non-taxed fringe benefits. The Cafeteria Plan guides the overall program in that these plans must not discriminate and most are ERISA plans. Specific Internal Revenue Code (“IRC”) sections govern the rules and procedures for each program within the Cafeteria Plan framework. These benefits are primarily for employees, there are significant limitations on the participation allowed for owners and partners.

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What are the basic benefit programs available?
Most employers start with a Premium Only Plan (“POP”) which uses pre-tax dollars to pay for their employees’ contributions towards group health insurance coverage.

The POP plan can then be expanded to include Flexible Spending Accounts (a “Flex Plan”) for Unreimbursed Healthcare and Child/Dependent Day Care.

Recently, Transportation Fringe Accounts for Mass Transit and Parking Expenses to commute to work (“TFA Plan”) have also allowed employees to use pre-tax payroll deductions.

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What is the Premium Only Plan ("POP")?
The POP Plan is usually the starting point for most companies as it includes only one pre-tax account which can be used for Healthcare Premiums. Employees who are asked to contribute towards the group insurance coverages (medical, dental and eye care plans can be included) can use pre-tax dollars to pay their contributions each payroll. It is usually done first since it is easiest to implement. There are no claims forms (money taken via payroll deductions is added to the employer's contribution and paid directly to the insurance company). The POP Plan is an ERISA plan which means the employer cannot discriminate and must have a written plan document.

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What is the Flex Plan (Flexible Spending Arrangements)?
The Flex Plan includes three optional pre-tax accounts which can be used for Healthcare Premiums, Unreimbursed Healthcare, and Child/Dependent Care. This is an ERISA plan which means the employer cannot discriminate and must have a written plan document.

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What is the TFA Plan (Transportation Fringe Accounts)?
The TFA Plan includes two optional pre-tax accounts which can be used for Mass Transit and Parking Expenses. While the plan cannot discriminate, a plan document is not required.

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What is the Healthcare Premiums account?
This account is the only option in a Premium Only Plan and the first part a Flex Plan. Employees who take insurance from the company can include their portion of the premiums paid through payroll deductions towards group coverage (including health insurance plans, HMO plans, PPO plans, dental plans, group term insurance, and group disability income, if applicable). Usually the group term and disability is not included since if an employee takes the pre-tax option on the premium the benefits may be taxable --- the benefits are much grater than the premium contributions and more valuable pre-tax when money is needed most.

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What is the Unreimbursed Healthcare account?
The Unreimbursed Healthcare account in our name for the Healthcare Flexible Spending account. This account allows eligible employees (even if they do not take the group insurance coverage) to use pre-tax dollars for out-of-pocket costs of healthcare for an employee and their family. Family members include anyone claimed as dependents on your income tax return (From 1040) as well as children or a spouse even if they file separate tax returns as long as you pay the healthcare expenses. Out-of-pocket healthcare includes allowable expenses on your Form 1040, (see Publication 502) as well as over-the-counter drugs and health clubs (when prescribed) which are either not paid or only partially paid by insurance or any other reimbursement plan. Thus, in effect you get itemized deductions for healthcare without having to itemize on your tax return (which means there is no income test as per the 1040, Schedule A which reduces the allowed deduction for healthcare based on a percentage, currently 7.5%, of your income.)

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What are allowable expenses for the Unreimbursed Healthcare Expenses account?
Money set aside in this account can be used for healthcare not reimbursed under any other insurance plan for you or any dependent. Allowable expenses follow the IRS guidelines for your individual tax return (see Internal Revenue Code Section 215, instructions for IRS Form 1040, Schedule A, lines 1-4 and IRS Publication 502). Some examples of qualifying expenses include:
- deductibles, co-insurance, or other out-of-pocket expenses not covered by any insurance, or other reimbursement program.
- eye care including fees to eye doctors, eye exams, eye glasses, contact lenses, laser eye surgery and sunglasses.
- dental care including checkups, x-rays, orthodontia/braces, oral surgery etc.
- prescription drugs including medicines, insulin, Viagra, and birth control.
- over-the-counter drugs including nicotine patches, cold medicines, aspirins, birth control, pain relievers, ointments, analgesics, etc.
- well care, preventive care, routine physical exams and immunizations.
- mental health and counseling including psychiatrists, psychologists, and in some cases social workers.
- holistic, eastern, or alternative medicine including acupunture, message therapy, and herbal remedies.
- chiropractic and other physical therapy.
- special schooling for physically or mentally handicapped, including remedial reading for dependents with dyslexia.
- health clubs when prescribed by a physician and not just for general health; thus, claims should be accompanied by a prescription (or note from the doctor describing the ailments and treatments).
- any out-of-pocket hospital costs for in-patient stays, emergency room visits, or out-patient treatment.
- travel costs to and from medical care, including ambulances, taxis, trains, buses, subways, and when you use a car an allowance of 13 cents per mile plus parking and tolls.
- special equipment authorized for medical care (hearing aids, special phone equipment for the deaf, wheelchairs, back braces, orthopedic shoes, arches, etc.).
Taxes are unique to each individual, so consult your tax advisor as to your specific situation !

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What is the Child/Dependent Care account?
The Child/Dependent Care account allows pre-tax dollars to be used by working couples or single parents for day care to watch a child or dependent under 13 years of age (or any age if disbled) so they can work (or attend school full-time). Family members include anyone claimed as a dependent on your income tax return (From 1040). Allowable expenses follow the rules on your individual tax return rules for the Child Care Credit (Publication 503 and Form2441), but instead of a being credit (which reduces the taxes you pay) this is an expense deduction (which reduces the income your report before calculating the taxes you pay).

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What are allowable expenses for the Child/Dependent Care account?
Expenses paid by you or your spouse for day care of an eligible dependent needed because you are working. The allowable deductions follow the IRS guidelines for your individual tax return (see the instructions to IRS Form 2441 and IRS Publication 503):
- You (and your spouse if married) must both be working; otherwise, to qualify, your spouse must be a full-time student or disabled.
- An eligible dependent can be any age if mentally or physically handicapped; otherwise, the dependent must be under age 13.
- The annual election cannot exceed $5,000 (or if for married but filing separately the limit may be $2,500) or the lesser of your earned income (annual compensation) or your spouse's earned income.
- You must provide the tax identification number, name, and address of the provider of the care services.
- Expenses reimbursed from the child/dependent care account cannot be applied to deductions or tax credits on your individual tax return.
For example, you may be able to include fees to certified day care centers, schooling before the first grade, or household services for the dependent as well as to run the home (housekeeper, maid, cook, baby-sitter, or cleaning person).

IRS rules state you cannot include child support payments, services to a chauffeur or gardener, schooling in or after the first grade, costs for an overnight camp, or costs for clothing or entertainment.

Taxes are unique to each individual, so consult your tax advisor as to your specific situation !

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What is the Mass Transit account?
Employees can use pre-tax dollars up to $105 per month for mass transit facilities to commute between their principal residence and their place of business. This account is for the employee only and cannot be used for dependents. Mass transit expenses includes purchase of tickets or transit passes (meaning any pass, token, fare card, voucher or similar item entitling a person to transportation) following the rules of Section 132f of the Internal Revenue Code. This is an option used instead of purchasing TransitChecks by many companies.

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What are allowable expenses for the Mass Transit account?
Qualified public transportation expenses up to $105 per month for mass transit facilities between the employee’s residence and place of business. It includes purchase of tickets or transit passes (meaning any pass, token, fare card, voucher or similar item entitling a person to transportation). For example: MetroCards, PATH QuickCards, AMTRAK, Commuter Rail Services (e.g., Long Island RR, Staten Island RR, Metro-North RR, etc.), Ferry Services, Commuter & Suburban Bus Services, Vanpool Services (e.g., Rideshare, Royal Coachman, VPSI Commuter Vanpools, etc.).

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What is the Parking Expenses account?
Employees can use pre-tax dollars up to $200 per month to park either near their workplace or at a location before using allowed mass transit expenses. This account is for the employee only and cannot be used for dependents following the rules of Section 132f of the Internal Revenue Code. Such expenses would not include any parking used for residential purposes.

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What are allowable expenses for the Parking Expenses account?
Qualified parking expenses up to $200 per month would be allowed for parking near the business premises of the employer or on or near a location from which the employee commutes to work by mass transit (see above), in a commuter highway vehicle or by carpool. Expenses include parking meters, parking stickers, and parking lots.

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Do I have to join?
No, these are optional benefits.

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How do these accounts affect other benefits provided?
They supplement the group health plans, but employees who are not in the group health plans provided by the company can still participate in these pre-tax options. While a participants Social Security taxes may be lower, these pre-tax options do not affect other benefits provided by the Employer. As for lowering the Social Security benefits, most employees find that the tax savings between 15% and 40% are more valuable and they make greater contributions to retirement plans (401ks, 403bs, and IRAs) to offset lower Social Security benefits, if any.

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What are the advantages of providing these benefits pre-tax?
Employers lower their payroll taxes, FICA, Medicare, and FUTA taxes are reduced. Employees lower their FICA, Medicare, Federal, State, and Local income taxes.

See an illustration of: How Do I Benefit - Flex Plan only?

See an illustration of: How Do I Benefit - both the Flex and TFA plans?

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What will the Flex Plan cost?
The costs for setup, enrollment and administration are usually paid by your employer.

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Will the money that is not yet claimed earn interest?
No, the advantage to an employee is the tax savings from using pre-tax dollars (usually between 15% and 40%). The money deposited is for claims reimbursement and is not invested since claims can be made throughout the plan year. Furthermore, the costs of calculating and crediting the small amounts earned by each participant would be more than the earnings themselves.

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