Pre-Tax Benefit for BTU Members*

Flexible Spending Plan Allows Pre-Tax Income to be Used For Certain Medical and/or Dependent Care Expenses

Open Enrollment November 11, 2003 - December 8, 2003
Informational meeting, December 2, 2003 at the BTU, 2:30 - 4

By Richard Stutman, BTU President

A new benefit plan that allows eligible employees to shelter up to $3,000 in pre-tax income per calendar year to pay for certain medical expenses is now in effect. To be eligible for the plan, employees must work at least 20 hours per week (half-time or more) on a regular basis and must have been employed for a minimum of one year.

Under the city's Flexible (Medical) Spending Account (FSA) employees who opt for inclusion will be reimbursed for a variety of out-of-pocket medical expenses (such as doctor/dentist co-pays and prescriptions) with pre-tax dollars which are exempt from federal, state and FICA taxation. A typical teacher who joins the plan can save up to 33% of $3000 of out-of-pocket medical expenses per year. Retirement contributions are not affected.

The plan is similar to the Dependent Care Plan (DCAP), which allows pre-tax dollars to be used for dependent care, such as day care or elder care. Open Enrollment for the both plans will run from 11/14 through 12/8. (Eligibility for the DCAP program is similar to the FSA, except that the one year minimum service requirement is waived.) Hundreds of city employees have joined one or both of the plans, with the number doubling last year.

New employees can sign up for the DCAP program within 30 days of hire or during the Open Enrollment Period. Eligible employees can also sign up within 30 days of a life event, e.g., birth, death, marriage, divorce, adoption, change in spouse's employment, and domicile relocation.

Both plans are relatively straightforward and provide a great tax benefit, but employees have to be cautious when participating inasmuch as moneys set aside for reimbursement must be used up by the end of the year, or those leftover moneys are forfeited. This regulation arises from Section 125 of the Internal Revenue Service Code, which governs these plans.

Here's an example of how the FSA (medical) works.

Teacher Jones estimates that he will spend $2000 this year in out-of-pocket medical expenses, and authorizes Cafeteria Plan Advisors, Inc. (CPA), the firm that manages the plan for the city, to take out $2000 divided by 22 or $90.91 over 22 pay periods. to pay for these expenses. (Under both plans deductions are taken over 22 pay periods only.) The money is taken out of Jones's check on a pre-tax basis, and is set aside in an account in Jones's name at CPA. As Jones pays for medical expenses, he submits proof, no less that $50 at a time, to CPA. CPA twice a month reimburses Jones for his expenses using Jones's pre-tax dollars. CPA charges Jones $4.50 per month for this service.

This year, in mid-January, Jones has oral surgery. Jones's out-of-pocket dental expenses total $1500 and Jones submits receipted payment of the bill to CPA shortly thereafter. By the end of February he gets his $1500 rebated to him. The $1500 spent is not subject to federal (approx. 28%), state (approx. 6%), or the FICA (1.45% for those who entered employment after 3/31/86 ) tax. In all, Jones saves approximately 35% of the $1500 or $525. Jones receives the total reimbursement at the end of February although his 2003 contributions have essentially just started. (Jones, incidentally, still has $500 of unused reimbursement money in his account to be used prior to 12/31/03 .)

A few points about the Flexible Spending Account Medical Plan :

• Out-of-Pocket Medical expenses are broadly defined, and include for example, deductibles, hearing devices, special telephones for the hearing-impaired , special diets, doctor-prescribed weight loss programs, and contact lenses to mention just a few. Call CPA, Inc. at 1-800-544-2340 for a brochure and a more detailed listing.
  
• Over the counter drugs such as antacids/pain relievers/allergy & cold medicines are now allowable expenses. Vitamins are not eligible, unless they are obtained by a prescription . This is a change. Over-the-Counter drugs were not eligible before this year.
  
• You can get reimbursed for expenses up to your annualized (full) deduction regardless of how much has been deducted from your paycheck as of the date of claim. (N.B. The DCAP works differently in this regard. In the DCAP, your reimbursement schedule cannot outpace your contribution schedule.)
  
• You cannot generally make changes (including a stop) in your contribution schedule once the calendar year begins UNLESS your life circumstances (marriage, divorce, death, adoption , or birth) change. A complete explanation can be found in the brochure published by CPA.
  
• You will forfeit moneys not used in the calendar year , so you must be very careful in setting up your annual allowance. Do not overestimate your projected expenses. At the end of the calendar year, you will have 90 days to submit a claim for reimbursement for expenses that took place during that calendar year.
  
• While the tax savings are in either plan are great, you need to be aware of plan rules, regulations, and limitations BEFORE committing.

On can set up a Dependent Care Plan in addition to a Medical Flexible Spending Account. The mechanics of both plans are essentially the same, except for the issue of the reimbursement schedule noted above. The accounts cannot be co-mingled, i.e., you cannot transfer dollars between the two.

The dollar limit of the Dependent Care Plan is $5,000. The same cautions apply. Please keep in mind a few other points as well.

• Eligible DCAP expenses include day care, elder care, pre-school tuition and before/after-school programs.
  
• Should you participate in the DCAP, the tax-free reimbursement you receive reduces the amount of the income tax credits you are otherwise eligible for. CPA Inc. will help you generally determine whether using tax credits or setting aside tax-free dollars is the most advantageous method for you. You still may want to seek independent help from a tax adviser . You can call CPA Inc. at 1-800-544-2340.
  
• Should you participate in the Dependent Care Plan you must provide the IRS on form 2441 with relevant information, including a social security number or a taxpayer ID, regarding the care-giver.

How to Sign Up :

One can call CPA, Inc., at 1-800-544-2340 and have an application initiated, mailed out to the employee, and then returned with a signature to CPA by the end of Open Enrollment. In the meantime, if you have any questions, please call CPA, the city's Group Insurance Office at 635-4570, or me at the union office if you have any questions.

Current participants will receive an authorization form mailed directly to their home in November. If you are a current participant and haven't gotten the authorization form by late November, please call Kim at CPA, Inc., and you will get a reenrollment form in the mail. Reenrollment is not automatic. If you are not a current participant, you MUST call 1-800-544-2340 to enroll or show up at the open house.

TOP

Contract Highlights | Benefits | Political Action | Community Outreach | Retired Teachers | Frequently Asked Questions |Information Bulletin | Highlights from Boston Union Teacher | Calendar of Events

Download Forms