SECTION 125 BENEFIT PLAN
The Saint Mary's University of Minnesota (Saint Mary's University) Section 125 Benefit Plan, effective September 1, 1986, is available to all employees of the University. This plan, adopted under the provisions of Section 125 of the Internal Revenue Service Code, and amended in August 1990 and August 1991 to comply with current regulation, allows employees to reduce their income in exchange for certain medical and other expenses, as described below.
PLAN BENEFITS
This plan consists of three separate benefit sections:
1. INSURANCE PREMIUM ACCOUNT
Employees may designate that their premium contribution toward group insurance plans sponsored by the employer will be deducted from their pay before taxes, rather than after taxes. The plan enables this to be done automatically for the amount of the insurance premiums. The premiums can include dependent health coverage, group life insurance and long term disability as long as it is offered through employer payroll deduction.
If the cost of the group premiums increases or decreases during the plan year the Plan Administrator will automatically increase or decrease the amount being set aside to pay the premium.
2. MEDICAL PAYMENTS ACCOUNT
Employees may designate on the Prospective Determination Statement the amount they wish to elect to be reimbursed for qualifying medical expenses. To qualify under the Section 125 Plan the expenses must be incurred by the participant, his/her spouse, or his/her dependents during the plan year, and cannot be reimbursable by any other health plan. Expenses are considered incurred when the participant is provided with the medical care and not when the participant is formally billed or pays for the care.
Generally, any medical expense that qualifies as a deduction on an individual's federal income tax also qualifies as a Section 125 medical expense. However, a Section 125 Plan may not be used to pay for premiums for other health care coverage, including premiums paid for health care coverage under a plan maintained by the employer of the employee's spouse or dependents. Expenses that are reimbursable under Section 125 are:
Unreimbursed payments made for deductibles or co-payments under the health plan, unreimbursed expenses for physical exams, dental exams, eye exams, laboratory fees, chiropractic exams, hearing aids, prescription drugs, mental health and chemical dependency treatment, and other medical payments not covered by insurance.
3. DEPENDENT CARE ACCOUNT
Within the following restrictions, day care payments may be designated up to the amount indicated by the employee on the Prospective Determination Statement.
Day care expenses must be incurred for a dependent under the age of thirteen (13), whom the employee may claim as a dependent exemption on the employee's federal income tax return, or a spouse or other dependent of the employee who is physically or mentally incapable of caring for himself or herself.
The expenses must be incurred to enable the employee to be gainfully employed and cannot exceed the employee's earned income. If an employee is married, expenses qualify only if the spouse is also employed or is a full time student. If an employee is married, reimbursement cannot exceed the lesser of the earned income of the employee or the employee's spouse for the plan year.
The dependent care must not be provided by a child of the employee under the age of nineteen (19) or by any other dependent of the employee.
The amount designated for dependent care cannot exceed $5000 per plan year and amounts paid as benefits under the dependent care account of Section 125 may not be used for the child care or dependent care tax credit. If you are in doubt as to which program is more beneficial consult with your financial advisor.
SECTION 125 PLAN OPERATION
The plan year will be September 1 through August 31. If you desire to participate, you should carefully review your needs throughout the upcoming plan year for the allowable expenses. Each employee must submit the Prospective Determination Statement each year prior to September 1 indicating the amount that you are willing to reduce your pay in exchange for these benefits or to elect not to participate. A new employee must submit a Prospective Determination Statement by the first of the month following the date of hire.
To make the best use of this program, care must be taken not to overestimate eligible expenses. Once employees have submitted the Prospective Statement the benefit amounts cannot be changed or modified during the plan year. The I.R.S. requires the amounts stated on the form to remain the same unless there is a change in family status resulting from a divorce or marriage, birth or adoption of a child, death of a spouse or dependent, or termination or commencement of employment of the employee's spouse. Any unused funds in an employee's account at the end of the plan year will be forfeited.
Each section of the plan must be estimated separately and separate accounts under each category will be established for each participating employee. This means that in addition to the overall total amount of wages you are willing to exchange for benefits, you must also specify how much you are willing to exchange in each particular benefit.
In the event that you would terminate employment with Saint Mary's University you may either:
1. Choose to revoke all existing benefit elections and terminate the receipt benefits for the remaining part of the plan year. The employee may still request reimbursement during the existing plan for expenses incurred before employment was terminated. If the employee is subsequently reemployed by Saint Mary's University during the plan year, the IRS prohibits the employee from participating in the plan until a new plan year begins.
2. Alternatively, the employee may choose to continue participation until the end of the plan year. Since the employee is no longer employed by Saint Mary's University, no further salary reductions can be made on behalf of the employee. The employee will be required to make timely payments in the same amount and on the same schedule. A payment will not be considered timely if it is over 30 days late, and participation in the plan will terminate.
As an individual employee, you have an allowable limit of income exchange of $10,000 per year, including expenses for both you and your dependents. The Insurance Premium Account, the Medical Payment Account, and the Dependent Care Account are included in the $10,000 limitation including $5,000 maximum for dependent care.
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA)
This plan is subject to the Health Insurance Portability and Accountability Act (HIPAA). On the basis of that law, privacy regulations apply to certain protected health information. The following provisions are adopted to comply with those requirements:
Saint Mary's University may only use and disclose protected health information for plan administrative functions that it performs for the plan. Information used and disclosed without specific authorization must be for treatment, payment, or healthcare operations.
The plan will not disclose protected health information to Saint Mary's University unless and until it receives a certification from the plan sponsor that the Saint Mary's University agrees to:
1. Not use or disclose the information other than permitted by the plan document or required by law.
2. Ensure that any of its agents to whom it provides protected health information agree to the same restrictions that apply to the plan sponsor with respect to such information.
3. Not use or disclose the information for employment-related actions and decisions or in connection with any other benefit or employee benefit plan of Saint Mary's University.
4. Report to the Section 125 plan any use or disclosure of the information that is inconsistent with the permitted uses or disclosures provided for of which it becomes aware.
5. Provide an individual with access to inspect or to obtain a copy of the protected health information that the plan has about the individual upon request.
6. Make available protected health information for amendment and incorporate any required amendments to protected health information.
7. Make available the information required to provide an accounting of disclosures of protected health information about an individual.
8. Make its internal practices, books, and records relating to the use and disclosure of protected health information received from the Section 125 plan available to the Secretary of the Department of Health and Human Services for purposes of determining compliance by the Section 125 plan with this subpart.
9. If feasible, return or destroy all protected health information received from the Section 125 plan that Saint Mary's University still maintains in any form and retain no copies of such information when no longer needed for the purpose for which disclosure was made, except that, if such return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction of the information infeasible.
10. Ensure that the adequate separation between the plan and Saint Mary's University is established.
Separation between the plan and Saint Mary's University must be maintained by the following:
1. Access to the protected health information to be disclosed is limited to employees responsible for payroll functions and any employees or persons who receives protected health information pertaining to the plan in the ordinary course of business.
2. The access to and use of the protected health information by the employees and other persons described above is restricted to plan administrative functions that the Saint Mary's University performs for the plan.
3. Employees of other persons described above who violate the provisions of this plan document with respect to the regulations protecting the confidentiality of health information are subject to discipline including termination of employment.
HOW TO PARTICIPATE IN THE PLAN
The Business office administers the Section 125 Plan. All employees must complete the Pospective Determination Statement prior to the start of the plan year, September 1. All employees must turn in the completed form, even if their participation in the Section 125 Plan is zero.
Each account of the Plan should be determined separately: Insurance Premium Account, Medical Payment Account, and Dependent Care Account.
Insurance Premium Account - The employee does not need to determine the cost of the insurance premiums, but must fill in ALL to have their insurance premiums paid automatically with pre-tax dollars each pay period. The deduction continues throughout the annual period of employment. If the cost of the group health plan changes during the year causing the employee's contribution to the premium to change, the business office will automatically increase or decrease the amount being set aside.
Medical Payment Account - You should carefully estimate the total amount you expect to submit for reimbursement of medical payments paid out of pocket for authorized medical payments as suggested on page 1. Enter the total annual amount in the appropriate place on the Prospective Determination Statement. Your pay will be reduced evenly throughout the plan year for the amount determined.
Dependent Care Account - Estimate your monthly day care expense and multiply this amount by 12 to compute your annual dependent care to be reimbursed. This amount should be entered on the Prospective Determination Statement. Your pay will be reduced evenly throughout the plan year for the amount determined.
Take special care in determining the amount of medical payments and day care because IRS regulations prohibit adjusting these figures during the year. Your pay will be reduced evenly throughout the plan year by the amount indicated in exchange for these benefits.
You must sign the Prospective Determination Statement and file it with the Business office by September 1. This is true even if you elect not to participate in the plan.
In order to receive reimbursement, you must first pay the expense and then submit the Summary Sheet certifying that payment. Only expenses not paid by group insurance are eligible. Expenses may be submitted each pay period. Medical payments may be reimbursed up to the maximum amount of your annual election. This has the effect of being a non-interest bearing loan. If you terminate employment during the plan year and have a medical payment advance, you will be responsible for repayment.
However, dependent care reimbursement can only be reimbursed up to the amount previously withheld from your pay for the dependent care benefit. If your dependent care account has insufficient funds to cover the claim submitted, the system will hold the remainder of the reimbursement for payment until after the next deposit.
As the claims for reimbursement are submitted, the amount will be added directly to your next payroll check.
You must also submit with each reimbursement sheet a written statement from an independent third party stating that the expense has been incurred and the amount of such expense is not reimbursable by any plan. Claims will not be processed without proper documentation. The documentation should be as described:
Medical Payments - A statement from an independent third party that a medical payment has been incurred and the amount of the expense must be included. This can be a copy of the billing or other documentation from a third party. You must also sign on the summary sheet that the medical expense has not been reimbursed and is not reimbursable under any health plan coverage.
Dependent Care Payments - It is necessary for the participant to complete the summary sheet and attach receipts from the day care provider. The receipt must verify the amount and nature of the expense, with the dependent care provider's social security number or Tax I.D. number.
The minimum amount allowed for reimbursement in one pay period is $25. Amount less than $25 should be held and submitted when the $25 minimum is exceeded. The only exception to this is at the end of the plan year to close out an account.
All expenses for medical and dependent care must be incurred by August 31 of the plan year. Reimbursement may be made up to 90 days following the end of the plan year.
HOW DO PLAN PARTICIPANTS BENEFIT?
By participating in the Section 125 plan you are allowed to receive tax savings because you are purchasing benefits with pre-tax dollars. As a result you realize more annual take home pay.
For purposes of illustration, consider this example:
-A married employee claiming 2 exemptions, bi-weekly payroll-
Employee Participating in Plan Employee Not Participating in Plan
Gross pay $1,000 Gross pay $1,000
Salary reduction:
Insurance -60
Day care expense -150
Medical expense -50
----------- -----------
Adjusted Gross pay $740 Adjusted Gross pay $1,000
Federal, state, FICA -127 Federal, state, FICA -202
taxes (approximately) taxes (approximately)
Insurance -60
Day care expense -150
Medical expense -50
---------- ----------
Pay after taxes and $613 Pay after taxes and $538
expenses expenses
Net difference $ 75 per payroll
This savings would amount to approximately $1,950 over the plan year and may be more significant based on your income, dependents, and expenses. Your employer does not guarantee that you will achieve any savings. This will depend partly on how well you estimate the expenses within each section.
EFFECT ON SOCIAL SECURITY
Because this plan reduces taxable income by the amounts submitted, the tax
for social security is also reduced. The social security benefits that you will receive upon retirement may also be slightly reduced.
YOUR ADDITIONAL RESPONSIBILITY
Although some eligible expenses under this plan might also qualify as federal income tax deductions, in most cases it will be more advantageous to claim them under the Section 125. Consult your financial advisor before you decide. You cannot claim these expenses in both places without subjecting yourself to assessment of penalties by the IRS.
As a participating employee, you also agree that Saint Mary's University will be held harmless for any retroactive changes or costs imposed by the IRS or Congress.
CHANGES TO THE PLAN
While this plan as presented complies with the proposed regulations issued by the Internal Revenue Service on May 7, 1984 and proposed regulations issued on March 7, 1989, it is possible that the final rules and regulations pertaining to Section 125 may be modified. Employees should understand that the plan may need to be modified in order to comply with the rules and regulations that become final. Saint Mary's University, therefore, reserves the right to change, modify, amend, or terminate this plan at any time.
GOVERNING LAW
This plan is designed to qualify under Section 125 (d) of the Internal Revenue Code of 1986. Further, this plan shall be operated and construed to comply with state law, federal law, rules and regulations of the Internal Revenue Service, the Department of Labor and ERISA.
If it is determined at any time that the Plan does not meet the requirements of any applicable law or is not being administered in an appropriate manner, the University shall, at its option, make appropriate amendments or adjustments, which may be retroactive, to bring the Plan into compliance with applicable IRS Rules and Regulations.
Any questions concerning the plan and/or its operation should be directed to the Business Office. |
