flexible spending account--do we want it?

[dope]

What is the name of your state? Illinois
Our employer, a state supported organization, wants to adopt a Flexible Spending Account as part of our employee benefits. We have 30 some employees, but only the 13 are full time employees with (paid) health insurance benefits. Two of these have family benefits which they pay for themselves. Seven are single. Now the questions:
*Is a flexible spending account the same as a medical savings account?
*Is this another kind of insurance that we a laying over our present health coverage or will we be getting new health coverage?
*How is this different from taking a medical deduction on our income tax?
*Is it true that we must file a 1040 (not 1040A or 1040EZ), plus another form, to participate?
*If we do not plan to remain employed for the entire next year, can we then pledge a very small amount (because we lose it if we don't use it)?
Do we pay the pledge in a lump sum or in periodic deductions?
*We are told that we all must participate and that if we object we "are crazy." Is this so?

 

[CIAA]

dope, you really need to discuss all this with your HR dept. and read all of the disclosures.

In most cases "flex spending accounts" is an account which the employer contributes to monthly, and then you choose which offered plans you want to spend these company flex dollars on....health, life, disability. etc., thereby reducing your cost. These employer contributions are usually pre tax dollars

It is usually different than a medical savings account, which is used for other things not covered by employer benefit plans.

I'm unaware of the necessity to use any special tax forms...these pre tax contributions will be shown on your W2.

 

[dope]

Thank you for your prompt response. Our HR doesn't know anything about it so that's why I am asking. We're all puzzled. We do not want to give up our very good health insurance. Is this an additional insurance on top of our rgualar medical insurance? At our last board of trustees meeting, one of our administrators was told it was her "job" to see that everyone agreed to this plan and stated that if we object we "are crazy." Maybe it's a good plan. I don't know. What sort of "disclosures" should we ask to see? This guy had another "oiff the wall" idea 2 months ago that we put down and he's still mad about that. It's confusing because we have severe financial difficulties--must take a loan to meet November payroll--with a big question about when state funds will be coming in. It seems like this FSA is a big distraction right now and it might be a springboard for us being expected to pay for our own health insurace which is now a benefit. Also, we don't want to do anything that severs us from the administrator of our Illinois Muniscipal Retirement Fund because we cannot participate in IMRF on own our own.

 

[cbg]

My company just put this into place this past year, and I was deeply involved with the implementation, so let em try to answer your questions.

With a flexible spending account, you have a percentage of your salary which you choose (within the guidelines of the plan document) withheld for you in a special account. This money can then be used, pre-tax, for the payment of certain medical bills.

A flexible spending account is NOT a substitute for health insurance. You need not give up your insurance for it; in fact, you should not. What the FSA will do is allow you to pay for eligible items that are not covered by your insurance, using pre-tax dollars. Examples of eligible items are, office visit co-pays, deductibles, eyeglasses, some dental work, medically necessary massage, and so forth.

It is not true that you have to file on any particular tax form in order to participate. It has nothing to do with retirement funds and will not in any way cut you off from any fund you are already associated with.

The amount that you choose is entirely up to you. In fact, it is a voluntary plan and to the best of my knowledge you cannot be forced to participate. You should definitely not elect any more than you believe you will be needing since, as you already know, such funds are use it or lose it. That is Federal law, by the way; it is not your employer being sticky.

I am very much in favor of such plans. I believe they are very beneficial to the employee, and I will happily answer any questions you have that I may have missed.

 

[dope]

I still don't get it. At a board meeting, at which I was present, it was stated that we all had to participate to put this plan into effect. An administrator was told that it was her job to get the employees (willing) cooperation. Our HR person, so far, has not been involved. This HR person does not take care of our health insurance. That is provided by another political entity that actually "owns" us. Our board is resentful about the amount of money they must pay to the other organization for participation in the group health plan and believes that health benefits could be purchased cheaper elsewhere. So I am suspicious that we will come out with less than we have now and perhaps with a new health plan. We do not know how much is now paid for each employee's health insurance and life insurance, etc. We only pay for our portion of the state pension plan. This pension plan cannot be administered by our organization, but must (by law) go through the other entity that "owns" us and also includes us in their group health plan. This organization is finding us to be an expensive "pain in the neck" so I just feel funny about all this and want to be sure I understand it. Our board president said something about us filing a 55-- form. I don't know what that was all about. It seems like the board would like to have us pay for our own health insurance which would be rough, and thinks they can slip it in without our noticing it. Please help me get this straight!

 

[cbg]

I could be wrong about the participation. I've never been in one that required participation, but I suppose it could be written like that.

I can tell you for certain that the intent of an FSA is NOT to replace health insurance. If anyone in your company has the idea that they can put in an FSA and use it to replace health insurance, then they do not understand themselves what an FSA is all about. That is definitely not what the IRS had in mind when they permitted the use of pre-tax dollars for this.

Now, that isn't to say that they might not replace the health insurance with a cheaper plan and use the FSA to make up some of the difference. That's okay. For example, if you have a $10 copay they might buy a cheaper plan with a $20 copay, and let you get the $20 back out of the FSA. But it absolutely, positively cannot be used in place of health insurance altogether.

The 5500 form is not your problem. The employees don't fill that out - the company does.