HOW TO SET UP A FLEXIBLE SPENDING PLAN IN YOUR ORGANIZATION

Almost any organization will benefit from an IRC Section 125 Flexible Spending Plan. Thousands and thousands of profit and non-profit companies across America have set up their own Flexible Spending Plans, and you can do it too!

The two biggest stumbling blocks organizations have in administering their own plans are (1) not knowing how to set up a functioning, legal plan for their company and (2) the time and expense involved in proper record keeping. The information below will solve both of those problems for you.

To set up the FLEXIBLE SPENDING PLAN you need:

1. Cafeteria Plan Legal Documents. Contact your attorney and have him/her draft both Flexible Spending Plan documents that meets the requirements of Internal Revenue Code Section 125. You will need both a Summary Plan Description and a Full Cafeteria Plan Legal Document. Below is a sample Summary Plan Description (SPD) for your reference.

If you prefer, you can have an experienced law firm that specializes in writing customized flexible spending plan documents that meet all IRS and DOL guidelines prepare your plan documents for you. Please call (801) 222-9700 and ask for Steve Skabelund, JD, CPA. Your plan documents will be quickly and professionally prepared for a small one-time fee.

2. Participant Enrollment. Below are both employer and employee information packets that cover most frequently asked questions. Employees should be provided with this information and encouraged to use the tax-free benefits worksheet to estimate their annual out-of-pocket medical and dependent care expenses. Our FAST- FLEX PLUS software includes a Paycheck Evaluator that demonstrates the tax-saving advantages of flexible spending plan participation to each employee. When the employee's expense and salary information is entered into the software, he is provided with a comparison of his take-home paycheck with and without a flexible spending plan. This data is automatically retained in the employee database for future program use. Company payroll tax savings are also calculated at the click of a mouse after all employee data has been entered.

3. Fast-Flex Plus Software. Keeping a cafeteria benefit plan's records manually could become very time consuming. Our software will help you quickly show the tax advantages of a cafeteria plan to each individual employee and will easily keep track of each individual employee's contributions, withdrawals, and account balances. It will also print qualified expense reimbursement checks. It can be downloaded free here.

4. Annual Report. The IRS requires the annual filing of Form 5500 or 5500-C. Here is a link to describe how easily non-discrimination testing and the form 5500 work with Fast-Flex Plus

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COMPANY

FLEXIBLE BENEFITS PLAN
SUMMARY PLAN DESCRIPTION (SPD)
TABLE OF CONTENTS

______________________________________________________________________________
OVERVIEW
THE PLAN
ADMINISTRATION
CONCEPT
PARTICIPATION
BENEFITS
CONTRIBUTIONS
BENEFIT ELECTION AND CONSTRUCTIVE RECEIPT
NON-INSURED MEDICAL, DENTAL, ACCIDENT AND HEALTH EXPENSES
DEPENDENT CARE EXPENSES
PAYMENT OF NON-INSURED EXPENSES
NON-ALLOWABLE EXPENSES
PERIODIC STATEMENT OF EXPENSES REIMBURSED THROUGH THE PLAN
CHANGE OF BENEFITS
TERMINATION OF BENEFITS
OTHER FACTS YOU SHOULD KNOW
FALSIFICATION
CLAIMS AND APPEALS
STATEMENT OF ERISA RIGHTS
______________________________________________________________________________

OVERVIEW

Note: The following is a summary and is designed to help you understand the provisions of a typical Cafeteria Plan. It is not a Full Cafeteria Plan Document. However, a Full Cafeteria Plan Document template, that may be loaded into any word processor and modified to meet your needs, can be purchased from our secure server.

The Department of Labor has issued rather complicated regulations concerning this Summary Plan Description. We have tried to comply with its requirements and still provide you with a document that is easy to read and understand. We realize that this is a rather lengthy document, but we hope you will take the time to read it.

THE PLAN

This Plan offers choice to a participant between taxable compensation (cash), and statutory non-taxable benefits (tax-free and taxable fringe benefits). Total compensation may be adjusted by the value of cash and other tax free benefits received.

ADMINISTRATION

There is an Administrative Committee to handle such functions as:

1. Interpreting the provisions of the Plan.

This Committee is appointed by the Board of Directors of the Corporation, and all members serve without pay. The Administrative Committee is also designated as agent for the service of legal process on behalf of the Plan.

CONCEPT

Through the COMPANY, Flexible Benefits Plan, you can request a salary reduction from your paycheck on a pre-tax basis, in an amount equal to your group and/or individual medical, life and dental premiums, plus an amount you predetermine will be needed to cover your costs of non-reimbursed non-insured medical, dental, accident and health expenses for yourself and/or your dependents.

Furthermore, if you are paying for dependent care which is deductible under IRS regulations, you can have deducted an amount equal to your expenses on a pre-tax basis and reimbursed as a non-taxable benefit.

Having these expenses deducted from your paycheck as pre-tax deductions and reimbursed to you for payment of those expenses, under the term of the Plan, will decrease your tax liability.

PARTICIPATION

A person who is a full-time employee with the Corporation is eligible to participate in the Plan.

Employees hired on or after the effective date will become eligible for participation on the first of the month after meeting the eligibility requirements and upon completion of the necessary enrollment forms. Employees who do not become participants on the effective date of their eligibility will not become eligible for participation in the Plan until the next enrollment of participants occur.

BENEFITS

Your Flexible Benefits Plan may be used to pay for expenses incurred by you or your eligible dependents which fall into the following categories:

1. Expenses you or your spouse pay as your share of medical, dental, accident and health costs, such as:

(a) Premiums for medical, accident and health coverage under the Corporation Medical Plan.
(b) Plan deductibles.
(c) Co-payments through the Corporation Medical Plan.
(d) Any salary deduction amounts not used by you during the Plan Year will be forfeited at the Plan Year end.

2. Expenses that are not covered by our medical, dental, accident and health plans, but which the IRS has historically considered deductible for income tax purposes. These would include:

(a) Amounts over reasonable and customary charges.
(b) Amounts above insurance plan dollar limits
(c) Expenses not covered under a medical plan.
(d) Cosmetic surgery if to correct congenital defect, disfigurement from an accident or result of a disease.
(e) Eye glasses and hearing aids.
(f) Non-reimbursed dental expenses.
(g) Any salary reduction amounts not used by you during the Plan Year will be forfeited at the Plan Year end.

3. Expenses in connection with dependent care. Eligible dependents include your spouse and "dependents" as defined under the COMPANY, Flexible Benefits Plan. Any salary reduction amounts not used by you during the Plan Year will be forfeited at the Plan Year end.

CONTRIBUTIONS

Participants can forego a pay increase, bonus, or reduce their present compensation for medical, dental, accident and health care, dependent care, conversion from employee paid to employer paid insurance premiums, on the Corporation Medical Plan.

BENEFIT ELECTION AND CONSTRUCTIVE RECEIPT

In order for the Flexible Benefits Plan to quality for protection under Section 125 of the Tax Code, the following rules must be followed:

1. Benefit Election. Prior to the effective date or date of actual participation or re- enrollment for subsequent Plan Years, each Participant in the Plan must enter into an Employee Payroll Reduction Agreement and "elect" (choose) which taxable or non-taxable benefits of the Plan they will participate in and the amount of salary reductions for each pay period during the following Plan Year.

Once the election has been made and payments into the Plan have been started, they cannot be "revoked" (stopped) or changed at any time during the Plan year, with one exception:

A Participant may revoke a benefit election after the coverage or Plan Year has commenced and make a new election for the remainder of the Plan Year if both the revocation and new election are on account of and consistent with a change in family status, e.g. marriage, divorce, death of a spouse or child, birth or adoption of a child, and termination of employment of spouse.

2. Constructive Receipt. When a Participant elects to have a certain amount of his compensation calculated before taxes and authorizes an employer to utilize these monies to pay for non-insured medical, dental, accident and health expenses that are considered non-taxable under IRS rules, the amount reimbursed for that Plan year must be used to pay for medical, dental, accident and health care expenses incurred in that year. There can be no excess reimbursements. An excess reimbursement is an amount in excess of actual expenses incurred. Therefore, it is important that the Participant only reduces his/her salary in an amount equal to determinable non-insured medical, dental, accident and health expenses.

NON-INSURED MEDICAL, DENTAL, ACCIDENT AND HEALTH EXPENSES

Any expense incurred as a result of participation in the Corporation's Medical, Dental, Accident and Health Plan can be reimbursed to the employee on a tax-free basis, provided that Participant has a reasonable belief the expenses would have been deducted if filing for a Medical Expense deduction on their Federal Income Tax Return.

You should note that these medical expenses do not have to exceed the IRS "Deductible Threshold" for deductibility in order to be eligible for non-taxable reimbursement under the COMPANY, Flexible Benefits Plan.

DEPENDENT CARE EXPENSE

The Flexible Benefits Plan allows Participants to receive non-taxable reimbursements for dependent care for eligible children or other dependents, provided they can be claimed as a dependent on their tax return.

The Plan will cover expenses for:

1. Babysitters, or companion, and

Dependent Care expenses are covered if:

1. The dependent is under age 15, or

Reimbursement will be limited to employment-related expenses as defined by the Internal Revenue Code -- that is, expenses which must be incurred to enable you or your spouse to remain gainfully employed.

If you are married certain limitations apply, such as:

1. Reimbursement will not be made for dependent day care expenses which exceed the lesser of the Participants' earned income or the income of their spouse.

Following are some examples of these earnings limitations:

1. If the Participant is married and earns $12,000 and their spouse earns $4,500, the Plan can only reimburse dependent care expenses up to the amount in the Participant's account or $4,500 whichever is the lesser amount.

2. If the Participant is married and earns $12,000 and their non-working spouse has no earned income, the Plan cannot reimburse any dependent care expenses except as described below:

If the spouse is a full-time student, or is physically or mentally incapable of self- care, the spouse is deemed to have earned income of $200.00 per month (if expense apply to one dependent), or $400.00 per month (if two of more dependents).

The plan can reimburse any Participant for dependent care expense, up to Five Thousand Dollars ($5,000), if married; and Two Thousand Five Hundred Dollars ($2,500), in the case of a married individual filing a separate tax return.

Payments to related individuals. Reimbursement cannot be made through the Plan for dependent care expenses paid to:

1. An individual who could be claimed as a dependent on their tax return (or the return of the spouse), or

A Participant who reduces compensation in order to receive non-taxable reimbursements for dependent care may not claim the dependent care expenses for the purpose of taking advantage of the dependent care credit on the Participant's individual tax return. Therefore a Participant should determine whether the non-taxable reimbursements or dependent care credit is more beneficial in his or her particular situation.

PAYMENT OF NON-INSURED MEDICAL, DENTAL,
ACCIDENT, HEALTH AND/OR DEPENDENT CARE EXPENSES

Any Employee who becomes a participant and enters into an Employee Payroll Reduction Agreement to reduce his or her compensation will receive a non-taxable reimbursement for non- insured medical, dental, accident, health and/or dependent care expenses. The total amount of salary reduction for the year will be divided by the number of pay periods. This money shall be returned to the Participant as reimbursement vouchers are submitted to the Corporation. To the extent salary reduction exceeds legitimate reimbursement under the Flexible Benefits Plan such excess shall be forfeited by the Participant.

NON-ALLOWABLE EXPENSES

There are certain expenses which are not allowable under the Flexible Benefits Plan. These include:

1. Expenses incurred before the Plan Year or date of employment, if later;

2. Expenses claimed as a deduction or tax credit for income tax purposes;

3. Medical, dental, accident and health expenses which have been reimbursed through any Medical Benefit policy or Plan; and

4. Expenses which have been reimbursed through Medicare or any other Federal or State program.

5. Expenses not allowable for dependent care as outlined under Dependent Care Expense of this Plan Summary.

PERIODIC STATEMENT OF EXPENSE REIMBURSED THROUGH THE PLAN

You will receive a periodic statement showing how much has been reimbursed through the Flexible Benefits Plan. This will enable you to determine:

1. Whether you are entitled to an income deduction or tax deduction or credit for reimbursed medical or dependent care expenses.

2. If your Plan reimbursement for dependent care expense exceeded the limitations described on page 3.

CHANGE OF BENEFITS

The salary reduction agreement and benefit allocation executed by you is binding for the Plan Year. You may not make any changes in this salary reduction and benefit allocation agreement during the current period except in the occurrence of a change in family status. If you believe you may have a change of family status, contact your plan representative.

TERMINATION OF BENEFITS

Eligible Employees may participate in the COMPANY, Flexible Benefits Plan as long as they are in employment status. If an individual is a qualified beneficiary continuation in the plan may also be possible. A qualified beneficiary is an individual who on the day before the qualifying event for a covered employee is a beneficiary under a group health plan either as the spouse or the dependent child of a covered employee. The covered employee may also be a qualified beneficiary if his coverage under the plan ends because of termination or reduction of hours of employment.

A Participant may elect to continue participation if loss of eligibility to participate stems from any of the following qualifying events:

Participant's death, termination (other than by reason of gross misconduct), reduction of hours or Participant becomes entitled to medicare benefits;

Satisfying coverage requirement. The plan provides for coverage identical to that being provided to similarly situated beneficiaries who are covered under the health plan. The coverage must extend for at least the period beginning on the date of the qualifying event and ending no earlier than the earliest of the following:

(1) 18 months after the covered employee's termination or reduced hours, if that is the qualifying event, or in the case of any other qualifying event, the date which is 36 months after the date of the qualifying event.

The plan provides that the continuation coverage election can be made during a period of at least 60 days duration which begins no later than the date on which coverage terminates under the plan by reason of a qualifying event, and doesn't end earlier than the later of 60 days thereafter, or, 60 days after the qualified beneficiary receives notice from the plan administrator.

The plan requires payment of a premium for any period of continuation coverage provided that it does not exceed 102 percent of the "applicable premium" for such period, and that, at the election of the payor, it may be made in monthly installments. If an election is made after the qualifying event, the plan permits payment for continuation coverage during the period preceding the election to be made within 45 days of the date of the election.

The continuation coverage may not be conditioned on, or discriminate on the basis of lack of, evidence of insurability.

Applicable Premium. The "applicable premium" is the cost of the plan of the period of continuation coverage for similarly situated beneficiaries covered by the plan, with respect to whom a qualifying event has not occurred, without regard as to whether its cost is paid by the employer or employee.

In the case of a self-insured plan, the applicable premium is equal to a reasonable estimate of the cost of providing coverage for similarly situated beneficiaries which is determined on an actuarial basis, and takes into account such factors as may be set forth in regulations.

If a plan administrator elects to have the following rule apply, the applicable premium is an amount equal to the cost to the plan for similarly situated beneficiaries for the same period occurring during the preceding 12 months (the "determination period"), adjusted by the percentage increase or decrease in the implicit price deflator of the gross national product (calculated by the Department of Commerce and published in the Survey of Current Business) for the 12-month period ending on the last day of the sixth month of such preceding determination period.

But a plan administrator may not elect this "past cost" rule if there is any significant difference, between the determination period and the preceding determination period, in coverage under, or in employees covered by, the plan.

Notice requirements. Each covered employee of the group health plan, and his or her spouse, shall receive written notice of the rights provided under Code Section 162(k) from the plan, at the time of commencement of coverage under the plan. Where the hours of employment, or the fact that he has become entitled to medicare benefits, the employer must notify the plan administrator of the qualifying event within 30 days of that event. The employee or his qualified beneficiary must notify the plan administrator where the spouse, or cessation of dependency status under the plan in case of a child. The administrator must then, within 14 days, give notice to the beneficiary of his rights under the plan.

Applicability of Section 11.2. Section 11.2, of the Flexible Benefits Plan Document which is on file with the Corporation Representative, shall not apply to this plan unless such application is mandated under state or federal law and, in such event, it shall not apply for any calendar year if the Corporation and all related employers normally employ, in the aggregate, fewer than 20 employees on a typical business day during the preceding calendar year.

OTHER FACTS YOU SHOULD KNOW

2. Participation in the Plan will not affect your other Corporation benefits. They will continue to be based on your total earnings without regard to any salary reduction under the Flexible Benefits Plan.

3. The Flexible Benefits Plan is based on the Corporation's understanding of current provisions of the Internal Revenue Code. The Corporation reserves the right to amend or discontinue the Plan if regulations or changes in the Revenue Code make it advisable to do so.

4. The plan's official name is the COMPANY, Flexible Benefits Plan.

5. Certain day to day administrative tasks may have been delegated to other qualified companies or individuals.

6. When you are communicating about the plan, there is certain identifying information you should know:

Plan Administrator/Corporation: COMPANY, (Employer I.D._______________)
Plan Number: 501
Plan records are kept on a plan year basis beginning January 1st and ending December 31st.

7. While the Corporation does intend to continue this plan for the foreseeable future, the Corporation does have the right to terminate it.

8. This booklet is based on the official legal documents that establish the plan. If there is any conflict between the information in this booklet and that in the official legal documents, the legal documents will govern.

FALSIFICATION

Falsification of any document or information in which reimbursement is being made will be considered sufficient reason for permanent forfeiture of eligibility for participation in the Plan.

CLAIMS AND APPEALS

If you or a beneficiary feel that you are entitled to certain benefits under the Plan which you have not received, you may made a claim under the Plan to do this. You should file a written claim with the Administrative Committee. The Committee will then investigate your claim within ninety (90) days after you file it. All reasons for its decision will be listed.

If the claim is denied, or if it is not acted on within ninety (90) days, the applicant has ninety (90) days in which to appeal the denial to the Board of Directors for review. The Board of Directors then has ninety (90) days to review the claim and to provide a decision in writing.

STATEMENT OF ERISA RIGHTS

As a Participant in the Corporation Flexible Benefits Plan you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan Participants shall be entitled to:

1. Examine without charge, at the office of the Corporation and at other specified locations, all Plan documents, including insurance contracts or other important documents required to be filed by the Plan with the U.S. Department of Labor; and

2. Obtain copies of all Plan documents and other Plan information upon written request to the Administrative Committee. (The Committee may make reasonable charges for the copies); and

3. Receive a summary of the Plan's Annual Financial Report. The Corporation is required by law to furnish each Participant with a copy of this summary annual report.

In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of employee benefits plans. The people who operate your Plan, called "Fiduciaries" of the Plan, have the duty to do so prudently and in the interest of you and other Plan Participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA.

If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reasons for denial. You have the right to have your claim reviewed and reconsidered.

Under ERISA there are steps you can take to enforce the above rights. For instance, if you request materials from the Administrative Committee and do not receive them within thirty (30) days, or were denied benefits, you may file suit in a Federal Court. If the Court were to decide in your favor, it may require the Administrative Committee to provide you the materials. The Court may also assess a penalty of $100 a day until you receive the required data, unless the material was not sent because of reasons beyond the control of the Corporation.

If it should happen that Plan Fiduciaries misuse the Plan's money or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal Court. The Court will decide who should pay the court costs and legal fees. If you are successful, the Court may order the person you have sued to pay these costs and fees.

It is required that these rights be explained to you, but it is important for you to know that if you were to file a false claim for benefits or a frivolous suit, the Court could order you to pay the costs and fees. While these rules are meant to protect your benefits, you should not abuse their use.

If you have any questions about your Plan, you should contact the Administrative Committee. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the U.S. Labor-Management Services Administration, Department of Labor.

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EMPLOYER PACKET

WHAT IS A CAFETERIA PLAN?

A Cafeteria Plan is a written plan under which all participants can chose between two or more benefits consisting of cash and statutory nontaxable benefits.

"Statutory Nontaxable Benefits" include only those benefits excludable from gross income by reason of an express provision of the Internal Revenue Code (other than Sections 117, 124, 127, or 132). Group term life insurance in excess of $50,000 and vacation days may also be included under certain conditions. Under Section 125(d)(2), a cafeteria plan may not provide for deferred compensation (although it may include a qualified cash or deferred arrangement described in Sec 401(k)).

The operative provision in SEC. 125 is Sec. 125(a), under which nontaxable benefits elected by a cafeteria plan participant will not be taxable solely because the participant could have elected cash (or taxable group term life insurance) instead.

TAXABLE BENEFITS: Cash

NONTAXABLE BENEFITS:

1. Group term life insurance. (Sec. 79)

2. Health insurance. (Sec. 106)

3. Medical Expense Reimbursement. (Sec. 105)

4. Group Legal Services. (Sec. 120)

5. Dependent care Assistance. (Sec. 129)

6. Section 401(k) participation (Sec. 401(k)).

7. Vacation Time (Tax Reform Act of 1984)

HOW MUCH YOUR COMPANY CAN SAVE?

Employers will save the employer-matching portion of FICA taxes for every dollar that employees reduce their salaries, asumming that the employees are below the FICA salary maximums. Additional tax savings may be realized by the Employer as the result of reduced unemployment and workman's compensation taxes.

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REPORTING REQUIREMENTS

A. Summary Plan Description (SPD)

The Department of Labor (DOL) requires that each organization which adopts a Cafeteria Plan prepare a Summary Plan Description upon adoption of that Cafeteria Plan. A copy of the Summary Plan Description should be given to each participant in the Cafeteria Plan and must be furnished to the DOL upon request.

B. Annual Return

Section 6039D(a) requires each employer maintaining a Sec. 125 cafeteria plan during any year that begins after December 31, 1984 to file a return for the year with respect to the plan. The annual return is to be filed on IRS Form 5500-C. This form is due seven (7) months after the end of the plan year.

The annual return is to include the following information;

(1) the number of employees of the employer,

(2) the number of employees of the employer eligible to participate under the plan,

(3) the number of employees participating under the plan,

(4) the total cost of the plan during the year, and

(5) the name, address, and taxpayer identification number of the employer and the type of business in which the employer is engaged.

C. Penalties for Failure to File

Under Sec. 6652(f) the failure of an employer to file the annual return required by Sec. 6039D(a) or any additional return required by the Secretary of the Treasury under Sec. 6039D(c) on the date in the manner prescribed shall result in a penalty of $25 per day up to a maximum of $15,000 per return, unless the failure to file is shown to be due to reasonable cause.

D. Record keeping Requirement

Section 6039D(b) requires each employer maintaining a cafeteria plan to keep such records for each year as may be necessary to determine whether the requirements of Sec. 125 are satisfied.

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EMPLOYEE PACKET

THE MOST FREQUENTLY ASKED QUESTIONS ABOUT CAFETERIA PLANS:

1. WHAT IS A CAFETERIA PLAN?

A Cafeteria Plan gives you, the employee, a chance to save a considerable amount of money in taxes. You can do this by paying certain qualified expenses (non-taxable benefits) out of your before-tax income which reduces the amount of salary that is taxed.

2. WHAT NON-TAXABLE BENEFITS ARE ALLOWABLE IN A CAFETERIA PLAN?

a) Your portion of health, medical or disability insurance.

b) Any out-of-pocket medical expenses you must pay, (deductibles, things not covered by your insurance)

c) Dependent care costs.

d) Group life insurance costs

3. MAY MY CHILDREN AND SPOUSE BE COVERED UNDER THE CAFETERIA PLAN?

Yes, anyone who qualifies as your dependent on your tax return is covered under the Cafeteria Plan. For example, all your dependent's medical costs (including any medical or health insurance premium paid by your spouse at his/her place of employment can be paid (i.e. reimbursed) under the Cafeteria Plan.

4. WHY SHOULD I PARTICIPATE IN THE CAFETERIA PLAN?

You will get significant tax savings, not only in the form of federal and state income taxes, but also the 7.65% FICA (Social Security) tax savings. An individual in the 35% federal and state income tax bracket, who elects non-taxable benefits under the plan of $2,000, would realize a $853.00 tax savings per year!

5. ARE THERE ANY OTHER REASONS I SHOULD PARTICIPATE IN THE CAFETERIA PLAN?

A Cafeteria Plan is unique because it allows you to design your own fringe benefit program. Because of this and also because of the tax savings realized, Cafeteria Plans are in high demand by employees in all types of companies.

6. HOW DO I MAKE THIS ELECTION?

You will make your choice as to what non-taxable benefits you desire through the means of a Salary Reduction Agreement. Assume you elect to have all medical costs, your portion of the company's health insurance premium and your dependent care costs paid by the Cafeteria Plan. You estimate these costs to be $1,800 for the year, or $150 per month. You then "reduce" your salary (for tax computations only) by $150 per month and have that $150 placed in a special trust in your name. From that trust account the company will then pay your portion of the health insurance premium. The remainder will be reimbursed to you to pay your medical and dependent care costs. You pay no income or FICA tax on the $150 per month you run through the flexible spending plan.

7. WHAT DO I NEED TO DO TO GET MONEY REIMBURSED TO ME?

You simply have to submit a reimbursement form. The form is forwarded to the Administrator, who then forwards you a check.

8. WHEN IS THIS ELECTION MADE?

The election is made prior to the beginning of the year. This election is made on a salary reduction agreement.

9. MAY I CHANGE MY ELECTION DURING THE YEAR?

Yes, but only under certain circumstances. The IRS regulations only allow an employee to changes his/her election if there is a change in "family status". For example, in case of marriage, divorce, death of spouse or child. birth or adoption of child, and termination of employment of spouse.

10. AM I KEPT UPDATED ON HOW MUCH IS IN MY ACCOUNT?

Yes, on either a monthly or quarterly basis you will receive an updated report on how much has been placed in each of your accounts, how much you have spent and what your balance is.

11. WHAT HAPPENS IF I DON'T USE ALL THE MONEY IN MY ACCOUNT?

The IRS rules require you to "use it or lose it." It is imperative therefore, that you do not put more money into your account than what you will use. Helpful ideas are to prepay medical, insurance and dependent care expenses if your account has more money in it than you can report on your reimbursement sheet.

12. WHAT HAPPENS IF I TERMINATE MY EMPLOYMENT BEFORE THE END OF THE YEAR?

You can still request the money in your account before the end of the year by turning in expense reimbursement forms.

13. QUALIFYING MEDICAL CARE EXPENSES

Under the Plan, you will be reimbursed only for those types of medical expenses normally deductible on your federal income tax return (without regard to the 7.5% of adjusted gross income limitation). They include, for example, expenses you have incurred for:

--Medicine, drugs, birth control pills, vaccines, and vitamins your doctor told you to take.

--Medical doctors, dentists, eye doctors, chiropractors, osteopaths, podiatrists, psychiatrists, psychologists, physical therapists, acupuncturists and psychoanalysts (medical care only).

--Medical examination, X-ray and laboratory service, insulin treatment, and whirlpool baths and doctor ordered.

--Nursing help. If you pay someone to do both nursing and housework, you can be reimbursed only for the cost of the nursing help.

--Hospital care (including meals and lodging), clinic costs, lab fees.

--Medical treatment at a center for drug addicts or alcoholics.

--Medical aids such as hearing aids (and batteries), false teeth, eyeglasses, contact lenses, braces, orthopedic shoes, crutches, wheelchairs, guide dogs and the cost of maintaining them.

--Ambulance service and other travel costs to get medical care. If you used your own car, you can claim what you spend for gas and oil to go to and from the place you received the care; or amount you claim under either method.

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EMPLOYEE GUIDE FOR TAX-FREE BENEFITS WORKSHEET

This guide is to help you determine the monthly contribution you should make to your Flexible Benefit Program.

Keep in mind your Flexible Benefit Program has been designed so you can put away TAX FREE MONEY into an INDIVIDUAL BENEFIT ACCOUNT TRUST FUND. This will reimburse medical and other health related expenses that are not covered by your group dental and health insurance program.

Think back over the last year about all the health and insurance related expenses for yourself, your spouse, your children and other dependents that your group health and dental insurance DID NOT pay, then list ALL these expenses below.

The term "Medical Expense" means amounts incurred for the diagnosis, cure, mitigation, treatment or prevention of disease for the purpose of affecting any structure or function of the body. Such term is expressly intended to include, but without limitation by way of inclusion, expenses incurred for psychiatric care and for the eyes and teeth.

HEALTH RELATED BENEFITS

I. MEDICAL EXPENSES

• Deductibles $
• Co-insurance $
• Physical exams $
• Eyeglasses/contacts $
• Cosmetic surgery $
• Alcohol Treatment $
• Weight Control $
• Convalescent Care $
• Hearing needs $
• Artificial Aids $
• Special Equipment $
• Chiropractic Cure $
• Prescription Drugs $
• Psychiatric Care $
• Medical mileage $
• Physical Therapy $
• Birth Controls $
• Dental Care $
• Vision Care $

TOTAL $

II. GROUP ACCIDENT, HEALTH & HOSPITALIZATION PREMIUMS $

NON HEALTH RELATED BENEFITS

III. DEPENDENT CARE

• Dependent care $

IV. INSURANCE PREMIUMS

• Cancer/dread disease insurance $
• Disability Insurance premiums $
• Term Life Insurance premiums $

TOTAL $

V. RETIREMENT (401(k) or 403(b)) $

SUMMARY

I. Medical Expenses $

II. Group Ins Premium $

III. Dependent Care $

IV. Insurance Premium $

V. Retirement $

TOTAL ANNUAL COSTS $


Divided by 12/months = $


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FLEXIBLE BENEFIT PROGRAM

SALARY REDUCTION AGREEMENT

THIS AGREEMENT MADE AS OF _____________, 20___ , between _________________________, hereinafter called EMPLOYER, AND ____________________________, hereinafter called EMPLOYEE.

Whereas, employee wishes to obtain the benefits of IRC Sections 105, 106, 125, 129, and other sections as amended, that provide benefits; and

Whereas, employer is willing to assist employee in obtaining said benefits.

Now, therefore, it is mutually agreed as follows:

SECTION 1: Employee's cash compensation per pay period shall be reduced by

$_________________________ effective with a pay period beginning on or after _________________.

SECTION 2: Employer will apply the amount by which cash compensation is reduced to provide benefits as selected below by employee. Employee will provide information required to obtain selected insurance plans.

EMPLOYEE SIGNATURE _________________________________________________

GROUP INSURANCE PREMIUM $

DEPENDENT/CHILD CARE EXPENSES $

MEDICAL EXPENSES $

SECTION 401(k) PLAN $

GROUP TERM LIFE INSURANCE $

SECTION 3: If Employee's employment is terminated, this agreement will terminate. Further, this agreement may be terminated in its entirety, and only in its entirety, by employee on thirty days written notice to employer; however, it may be revoked or amended by a writing signed by both parties hereto.

BY:________________________________________ PRESIDENT

EMPLOYEE'S SIGNATURE ________________________________

EMPLOYEE'S SOC. SEC.# ____________________________

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SAMPLE REIMBURSEMENT FORM

Name:________________________________________

Signature:__________________________________

Date:__________________________________

Social Security Number: __________________________________

Company: _____________________________________________

Address:______________________________

City:_____________________ State:______ Zip:_________

Expense Type 1/	Name	Relationship	Provider of Service	Date of Service	Reimbursement Requested 2/
Total

1/ (M)edical, (D)ependent Care, (O)rthodontia, (V)ision , (H)earing