SECTION 125

CAFETERIA BENEFIT PLAN

JANUARY 2021

INTRODUCTION

The City of Springfield offers an optional tax savings concept in for any employee who holds a regular position and who is regularly scheduled to work at least 30 hours per week – the City of Springfield Cafeteria Plan, the Dependent Care Assistance Plan, and the Medical Care Reimbursement Plan.

In 1978, Congress passed Section 125 of the Internal Revenue Service Code. This section of the code permits the installation of Cafeteria Plans which allow employees the option to use PRE- TAX dollars to spend on employer paid insurance premiums (medical, dental, cancer, intensive care, and life), dependent care expenses, and out-of-pocket medical care expenses that are normally paid for by the employee with AFTER-TAX dollars.

With the passage of Council Bill No. 89-516, the Springfield City Council authorized the establishment of a qualified Cafeteria Plan for City employees under Section 125 of the Internal Revenue Service Code, effective February 1, 1990 and as amended on January 1, 1992, January 1, 2010 and January 1, 2013. Contributions to the plan each year will begin with the first payday in January and end with the last payday in December.

Each year, the City will announce an open enrollment period. During this period, you must make some very important decisions about the taxability of that portion of your gross income, which is used to pay insurance premiums, dependent care, and medical care expenses in the applicable plan year. An eligible employee who desires to take advantage of the Cafeteria Plan must file a new agreement annually with the Human Resources Department by the end of the open enrollment period. Generally, once you make these decisions, they cannot be changed during the plan year (see Cafeteria Plan Restrictions section of this booklet). It is worth your time to understand your choices and to make them carefully.

Eligibility for participation in the Cafeteria Plan occurs when an employee is appointed to a regular status position and is scheduled to work a minimum of 30 hours per week. Newly eligible employees receive a Cafeteria Plan Election Form, which must be completed and returned to the Human Resources Department within 31 days of their initial eligibility date if they wish to participate during their first year of eligibility.

This booklet provides an explanation of each option available under the City of Springfield Cafeteria Plan. If you desire more information, please contact the Human Resources Department.

Table of Contents

What is a cafeteria plan? ...... 1

Pre-tax medical, dental, cancer, and life insurance premium conversion ...... 1

What are the dependent care assistance and medical care reimbursement plans? ...... 2

Dependent care flexible spending account ...... 2

Medical care flexible spending account ...... 3

How will the flexible spending account work? ...... 5

Cafeteria benefit plan restrictions ...... 6

ii WHAT IS A CAFETERIA PLAN?

A “Cafeteria Plan” is a separate written benefit plan maintained by an employer for the benefit of its employees and is designed to pay benefit programs presently in effect with pre-tax dollars. Section 125 of the has authorized the establishment of such benefit plans which permit participating employees to convert a taxable cash benefit () into nontaxable benefits.

The purpose of the City of Springfield’s Cafeteria Plan is to provide employees a choice between taxable and nontaxable benefits. The benefits that can be utilized under the Cafeteria Plan are Dependent Care Assistance Plan, Medical Care Reimbursement Plan, Life Insurance Plan, Health Care Insurance Plan, Dental Insurance Plan, Vision Insurance Plan, Intensive Care Insurance and Cancer Insurance Plans maintained by the City of Springfield, the Springfield Police Officers’ Association, and the International Firefighters Association, Local #152. By choosing to pay qualified benefit premiums under any of the insurance plans mentioned above before any taxes are deducted from your paycheck, your benefits become more affordable.

By paying for qualified benefits before you pay taxes, you actually lower your “taxable” income, which means you pay less tax. When you take advantage of the City’s Cafeteria Plan, you will actually “take more money home” in your paycheck every payday.

PRE-TAX MEDICAL, DENTAL, CANCER, INTENSIVE CARE, VISION, AND LIFE INSURANCE PREMIUM CONVERSION:

You are eligible to pay for your group medical, dental, cancer, intensive care, vision, and life insurance premiums through participation in the City of Springfield’s Section 125 Cafeteria Plan. To participate in this plan, you must elect to have a portion of your salary redistributed to pay for your insurance premiums on a pre-tax basis.

It is important to note that during the plan year, you cannot elect, suspend, increase, decrease, or modify in any way the types of insurance coverage you have selected unless you experience a “change in family status” as defined in the “Cafeteria Benefit Plan Restrictions” section of this booklet.

Also, pre-tax premiums paid through voluntary salary redistribution agreements are considered by the Internal Revenue Service to be “employer-provided benefits.” The IRS has imposed additional requirements for individuals with total “employer-provided” group term life insurance coverage levels greater than $50,000. For a more detailed explanation of these IRS imposed restrictions, refer to the “Cafeteria Benefit Plan Restrictions” section of this booklet.

Please note that execution of a Cafeteria Plan Election or Change Form does not begin or terminate coverage in any benefit plans or policies. The terms, conditions, and actual coverage effective date or termination date of the underlying coverage will be determined under the separate rules and provisions of the benefit plans or insurance policies.

1 WHAT ARE DEPENDENT CARE ASSISTANCE AND MEDICAL CARE REIMBURSEMENT PLANS?

The Dependent Care Assistance and the Medical Care Reimbursement Plans are arrangements that permit you to pay for qualifying dependent care and/or medical care expenses with pre-tax dollars. Under flexible spending arrangements, individual spending accounts are set up for your bi-weekly contributions.

To participate in either of these plans, you must elect to have a portion of your salary redistributed as “pre-tax” employee contributions to establish and fund your flexible spending account or accounts. Each spending account will be based on your individual annual contribution.

Throughout the year, as you incur qualifying expenses, reimbursements from your individual spending account will be made upon the receipt of reimbursement request.

The advantage to flexible spending account participation is that you use pre-tax dollars to pay for expenses you would otherwise pay with after-tax dollars. The money contributed to your spending account reduces your taxable income each pay period and therefore lowers your Federal, State, and Social Security taxes, which actually increases your net pay.

DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT:

The City of Springfield’s Dependent Care Reimbursement Plan permits eligible employees to establish tax-free dependent care spending accounts to pay for qualifying dependent care expenses. Employees make an annual election to make bi-weekly contributions, via payroll deduction, to a specific dependent care spending account established exclusively for his/her benefit.

You may use the Dependent Care Flexible Spending Account if day care services are required for your dependents so you can work. If you are married, your spouse must be either gainfully employed, disabled, or a full-time student.

The dependent day care charges must be incurred for individuals that are either:

• your child under age 13

• a child under age 13 whom you are entitled to claim as a dependent on your federal income tax return

• your spouse or other qualifying dependent who is unable to care for themselves because of a physical or mental disability and who regularly spends at least 8 (eight) hours per day in your household.

2 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT: (continued)

Dependent care expenses cannot be paid to a child of yours who has not attained the age of 19 at the close of the taxable year, or to anyone you are entitled to claim as a dependent on your federal income tax return.

The maximum annual contributions to which you may be entitled is limited by the IRS and shall be the least of:

• $5,000 ($2,500 if married and filing separate returns)

• Your spouse’s total annual income (if less than $5,000)

• Your earned income for the plan (after all reductions in compensation including the reduction related to dependent care assistance)

It is important to note that the Federal government currently offers a “tax ” for these qualifying dependent care expenses. The amount of credit available is based on a combination of your annual taxable income and the number of your qualifying dependents. The tax credit is subject to Internal Service Revenue revisions.

You will need to decide which approach will yield you the greatest tax savings – through the “Dependent Care Tax Credit” or through participation in the City of Springfield’s Dependent Care Flexible Spending Account. It is important to note that all contributions placed in your dependent care assistance account do not also qualify for the tax credit.

If you have questions about your tax situation, see a qualified tax consultant. Additional information relating to qualifying dependent care expenses may be found in IRS Publication 503.

MEDICAL CARE FLEXIBLE SPENDING ACCOUNT:

The City of Springfield’s Medical Care Reimbursement Plan permits eligible employees to establish tax-free medical care spending accounts to pay for qualifying out-of-pocket medical care expenses not to exceed $2,750 annually.

You may use the Medical Care Flexible Spending Account to pay numerous types of medical expenses that are not covered under any insurance plan or other benefit plan. Items that qualify for reimbursement include:

• Deductibles and co-payments

• Eligible charges due to a medical provider in excess of the charges paid or allowed by your health plan

3 MEDICAL CARE FLEXIBLE SPENDING ACCOUNT: (continued)

• Dental, vision, and hearing care not covered under an insurance or benefit plan

• Routine medical exams, physicals, and well baby care

• Qualified over-the-counter medications as defined by IRS regulations

• Other medical expenses not reimbursed by a health plan such as:

Special medical equipment

Almost any medical product or service prescribed by a doctor for which you must pay out-of-pocket

The expenses may be for services or products provided to you, your spouse, or any person who qualifies as your dependent under Federal income tax rules.

PRIVACY AND SECURITY OF PROTECTED HEALTH INFORMATION: HEEEEEEEEEEEEEEEEEEEEEEEEEEEHEAHEEALTH

The City of Springfield complies with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Title II, Administrative Simplification Rules as outlined in Amendment VIIIA of the Cafeteria Plan – Medical Reimbursement Plan.

The City of Springfield is committed to protecting the security and privacy of your protected health information. Written policies and procedures related to privacy and security of health information are outlined in detail in regard to the City’s HIPAA compliance plan. These policies and procedures are maintained and administered by staff of the Human Resources Department.

A Notice of Privacy Practices was provided to you on or before April 14, 2003 if you were employed by the City of Springfield at that time. New employees hired after April 14, 2003 are provided with a Notice of Privacy Practices with their payroll and benefits enrollment packet. You may request a paper copy of the Notice of Privacy Practices at any time by contacting City of Springfield, Privacy Officer, Human Resources, Busch Municipal Building, 3rd floor, 840 Boonville Avenue, Springfield, MO 65802, 417-864-1600. You may also obtain a copy of this notice at the City of Springfield’s website, http://www.springfieldmo.gov/hr/hipaa_notice_privacy_practices.pdf or employees may obtain a copy via the City of Springfield’s intranet site.

4 For questions about your privacy rights, contact the Deputy Privacy Officer who is designated as:

Human Resources Specialist – Benefits City of Springfield 840 Boonville Avenue Springfield, MO 65802 417-864-1608

HOW WILL THE FLEXIBLE SPENDING ACCOUNT WORK?

You will accumulate money in a Dependent Care Spending Account or a Medical Care Spending Account from pre-tax employee contributions as you so designate on your Cafeteria Plan Election Form.

The amount of your annual contribution election should not exceed the out-of-pocket expenses you expect to incur for dependent care or medical care expenses from the date you join the plan through the end of the Plan Year.

Review your records from the previous year to see how much you actually spent on eligible dependent care and medical expenses. Using this amount as a guide, project the amount of qualifying expenses you expect to have during the upcoming plan year. Remember to be conservative when estimating your expenses because any money remaining in your Dependent Care Account at the end of the plan year will not be refunded to you (see the Use It or Lose It provisions in the Restrictions Section). Any money left in your Medical Reimbursement Flexible Spending Account at the end of the grace period will not be refunded to you. (See Grace Period and Use It or Lose It provisions in the Restrictions Sections).

The amount you elect to contribute to your spending account or accounts will be deposited to your individual spending accounts on a bi-weekly basis (26 pay periods per year). The deposits to your accounts will occur on each payday. The amounts deposited for each calendar year will be determined by the pay dates. For example, if a pay date falls on January 2, this deposit will be applied to the new plan year and cannot be used to reimburse expenses incurred in a prior year.

Reimbursements for dependent care expenses may not exceed the balance in your spending account at any time. If your request for reimbursements exceeds your account balance, the difference will be paid when your account balance is increased to a sufficient level to cover the unpaid request.

Your out-of-pocket medical expenses can be submitted and will be reimbursed as incurred. Your reimbursement will be limited to the amount you have specified as your annual contribution to your medical care spending account. The maximum amount that can be contributed and reimbursed under the Medical Care Flexible Spending Account is $2,750.

5 When your participation is terminated, you may submit claims for reimbursement on or before the earlier of 1) the 180th day following termination or 2) the 90th day after the close of the plan year.

Spending account reimbursements do not appear on your annual W-2 form as income. The money is paid back to you completely tax-free, just as it was when it was deposited into your account. The amount you contribute to your dependent care assistance spending account will appear as a separate item on your W-2 form for use in completing IRS Form 2441.

CAFETERIA BENEFIT PLAN RESTRICTIONS:

The Internal Revenue Service has established several very important restrictions and rules regarding Cafeteria Benefit Plans. These rules must be complied with fully in exchange for the significant tax advantages to employees who participate in Cafeteria Benefit Plans.

The following is a summary of the IRS Cafeteria Plan restrictions. For a more detailed explanation of these rules, you should review the City of Springfield’s Cafeteria Plan documents that are on file with the City Clerk’s Office.

“Grace Period” Rule:

Any money left in your Medical Reimbursement Flexible Spending Account at the end of the calendar year will be covered under the “Grace Period”. During the Grace Period any qualified expenses incurred during the 2 ½ months after the end of the calendar year may be submitted to be reimbursed from the money left in your account at the end of the previous calendar year.

“Use-It-or-Lose-It” Rule:

Any money left in your Dependent Care Spending Account at the end of the calendar year will not be refunded to you if not spent on qualifying expenses incurred during the plan year.

Any money left in your Medical Reimbursement Flexible Spending Account at the end of the grace period will not be refunded to you if not spent on qualifying expenses incurred during the plan year and grace period.

All applications for Flexible Spending Account reimbursements must be filed by March 31 after the close of the plan year.

6 Irrevocable Annual Elections:

Benefit elections made under the Cafeteria Plan are irrevocable during the Plan Year. Participating employees cannot elect, suspend, increase, decrease, or modify in any way the amount or type of benefit option selected to be received during the year unless he/she experiences a “change in family status.” A change in family status includes but is not limited to the following:

❖ Marriage

❖ Divorce

❖ Birth or Adoption of a Child

❖ Death of a Spouse or Child

❖ Commencement or Termination of Spouse’s Employment

To change a Cafeteria Plan election during the Plan Year due to a change in family status, a Cafeteria Plan change form must be submitted to the Human Resources Department no later than 31 days after the date of the family status change. Exceptions to this deadline will only be accepted with the Human Resources Director’s approval.

Effects on Deferred Compensation

Your contribution to a Deferred Compensation Plan will be calculated as a percentage of “Gross Income.” Pre-tax contributions paid through employee elective salary redistribution agreements are considered as income for Deferred Compensation purposes.

Effects on Social Security

Pre-tax contributions paid through employee elective salary redistribution agreements are not considered to be “FICA taxable ” for Social Security purposes. Since a participant’s contributions to the Social Security plan and the base used in calculating Social Security benefits will be REDUCED, the Social Security benefit that he/she receives upon may also be reduced. Under the present City retirement plans, the wage base for computation of LAGERS and Police and Fire benefits will not change; therefore, the amount of these benefits is not affected.

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