Flexible Spending Accounts are one of the best employee benefits offered by employers of all sizes. This is true because there are benefits for both employees and employers.
FSAs are cost efficient!
An FSA is a voluntary benefit that is funded by employee contributions, although an employer may contribute to an FSA as well. In addition to benefiting employees, FSAs also offer a payroll tax savings to the employer.
Employers are not required to match Social Security, Medicare, or pay Workers Compensation premiums (in Ohio) on contributions employees make to their Flex Plan Accounts. The payroll tax savings on employee contributions minimizes Plan operational costs.
FSAs help overcome the shrinking benefit syndrome!
Of the options available to employers to contain rising benefits costs, there are two which are viable, but neither are desirable. These are to regularly increase deductibles and co-pays, and/or require that employees pay more of the total premium. Employees view these two choices as very negative.
FSAs are a positive response to inevitable benefit changes!
Employers have found that a tax-free FSA is a positive addition to their benefit programs. By offering an FSA, the employer is giving each employee a tax-free bank account to help soften the impact of increased employee benefit costs.
What are FSAs?
FSAs expand the scope of employee benefits without increasing employer costs. A pre-tax FSA is a non-discriminatory employee benefits program designed to take advantage of certain provisions of Section 125 of the Internal Revenue Code. The plan helps your employees purchase certain items on a tax-free basis. Examples of such items are medical deductibles & co-insurance, prescription and doctor expenses, dental expenses including charges for orthodontia, vision expenses, and work-related child care to name but a few.
How do FSAs work?
This is truly an employee benefit because only employees of a sponsoring employer may open such a tax free account. Each employee is given the opportunity to establish his or her own account. At the beginning of each plan year, each employee decides how much his or her qualifying expenses will be in the coming year. Based on this budgeting process, contributions are then made through payroll deductions into their FSA. These deposits are made on a tax-free basis. As expenses are incurred, the employee may request reimbursements from the account, which are also tax-free.
What Are The Advantages?
The Three Advantages To The Employer:
- Employers do not have to match Social Security, Medicare, or pay Workers Compensation payroll taxes (in Ohio) on voluntary contributions to a Flexible Spending Account. Because of the payroll tax savings, an employer may actually make money by merely offering the plan to employees.
- Flex Plans are easy to implement, are easy to maintain and are cost-efficient.
- Flex Plans help temper negative reactions to benefit changes.
There Are Two Advantages To The Employee:
- The first advantage is that contributions to an FSA are not taxable for Federal, most State, Local (in Ohio), Social Security or Medicare. To pay eligible expenses, a participant need only earn $1.00 to pay $1.00.
- The second advantage is that participants get to make annual contributions to their account equally over each pay period. Payroll deduction makes budgeting for these types of expenses a lot easier.
You’ll be amazed, employees will be very vocal about their appreciation of this benefit!
What Will Encourage Employees To Contribute?
The administrator you choose must have several capabilities to achieve maximum employee contributions. Ask questions when evaluating what an administrator will do to encourage employees to contribute.
Questions to Ask Any Administrator
- Ask to look at employee communication pieces and educational presentations.
- Ask how often claims are paid.
- Ask if walk-in claims payment is offered.
- Ask if claims are reviewed upon receipt.
- Who answers the phone? A real person? Can they answer your call?
- Ask for a list of services to be performed, is non-discrimination testing included?
Understanding and using an FSA is not obvious. Educational meetings are extremely helpful to teach employees how to use an FSA or, as is the case nationally, employees won’t use it. Review carefully the administrator’s ability to teach.
The more often claims are paid the better. Claims paid once a month will produce the lowest level of participation. Claims paid daily will produce the highest level of participation.
Few administrators permit participants to bring claims to the administrator’s office and wait while their reimbursement is processed on the spot. There are lots of participants who will appreciate and use this service.
A certain percentage of submitted claims are incomplete. Waiting until claims payment time to review claims will substantially increase the time between submission of the claim and receipt of a reimbursement if the claim must be sent back for more information. If given a day time phone number, FlexBank will call the participant to explain what we need so we can pay their claim quickly.
Some administrators are full service. Some are not. FlexBank can help you ensure your plan stays compliant.
Relax, we’ve got this.