First Concord Benefits Group, LLC

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PRACTICAL QUESTIONS AND ANSWERS There are many questions in the area of cafeteria plan administration due to the fact that so little guidance has been issued by Congress, the Internal Revenue Service (IRS) and the Department of Labor. Over the past few years we have discussed administration with many CPAS, attorneys, third-party administrators, benefit communicators, insurance agents and the IRS. What follows is a list of the major issues that have arisen out of these discussions. We have attempted to answer these questions based on our understanding of the law and regulations, and based on informal correspondence with the IRS. Q. Can we fax our claim forms? A. Yes. You may fax in your claim forms with the appropriate information filled out and signed. You do not need to send the originals in the mail. Q. When do we receive our checks? A. Your checks will be processed and included with your next paycheck from your employer. Q. Do services have to be paid for prior to my submitting a claim? A. No. Only the date of service is important. Not the date of payment. Q. When do I need to submit a claim in order for it to be reimbursed with my next paycheck? A. If you are mailing your claim, 5-6 business days should be allowed. A faxed claim could be sent up to four days prior to your payday. Q. How can you predict medical expenses? A. Normally you can't. If you over estimate your expense you will lose what's left. PLAN Q. What is a Cafeteria Plan under Code Section 125 A. A Cafeteria Plan is a separate written benefit plan maintained by an employer for the benefit of employees under which all participants are employees and each participant has the opportunity to select the particular benefits that he desires. The plan must offer at least one taxable benefit and at least one nontaxable benefit. (Reg. Sec. 1.125-1 Q&A-2) Q. Can employer contributions to a Cafeteria Plan be made pursuant to a salary reduction agreement between the participant and the employer? A. Yes. A plan document may provide that the employer will make contributions pursuant to a salary reduction agreement under which participants elect to reduce their compensation or to forego increases in compensation and to have these amounts contributed to the employer on their behalf. (Reg. Sec. 1.125-1 Q&A-6) Q. Can a Cafeteria Plan offer a benefit that defers the receipt of compensation? A. No. A Cafeteria Plan cannot offer a benefit that defers the receipt of compensation except for contributions under a qualified cash or deferred arrangement defined in 'Code Section 401(k). (Reg. Sec. 1.125-1 Q&A-7) A plan that permits employees to carry over unused elective contributions or plan benefits from one plan year to another operates to defer compensation. Thus, this benefit would not be a qualified Cafeteria Plan benefit. Similarly, a Cafeteria Plan operates to permit the deferral of compensation if the plan permits participants to use contributions from one plan year to purchase a benefit that will be provided in a subsequent plan year. (Reg. Sec. 1.125-2 Q&A-5) Q.

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