FREQUENTLY ASKED QUESTIONS
|KCI FINANCIAL SERVICES, INC.
"Celebrating our 28th Year"
Q. What is a Cafeteria Plan?
A. A Cafeteria Plan is a way of providing you with valuable benefits and significant tax
savings. Benefits under a Cafeteria Plan may include reimbursement of dependent
care expenses and medical expenses not covered by insurance. It may also provide
the ability to pay for insurance with pre-tax dollars. Check with us on which benefits are
currently available under your specific plan.
Q. How does a Cafeteria Plan work?
A. You select the benefits you want from the Cafeteria Plan menu. You "pay for" these
benefits by redirecting a portion of your salary in an amount sufficient to pay for each
selected benefit. The advantage of redirecting a portion of your salary to pay for these
benefits through the plan is that these amounts are redirected from your salary before
being subject to federal income tax or social security taxes. Without the Cafeteria Plan,
these expenses are paid for with after-tax dollars.
For non-insurance benefits (such as the dependent care reimbursement program and
the medical reimbursement plan), any money you direct into the plan is placed into a
separate benefit account for each benefit you elect. As you incur a qualifying expense
(for example, a day care bill), you submit a claim to the claims administrator and are
reimbursed from the money in your benefit account. For insured benefits, the amount
you redirect is automatically used to pay the premiums for the coverage. The primary
benefit of participating in the Cafeteria Plan is that you're not taxed on the portion of your
salary you redirect into each benefit account, nor are you taxed when reimbursements
are made. Therefore, through a Cafeteria Plan, you can now pay, with pre-tax dollars,
the same expenses you were previously paying for with after-tax dollars.
Q. How will I benefit from joining the Cafeteria Plan?
A. You'll benefit from joining the plan because your disposable income will rise as you
pay for these ongoing expenses with pre-tax rather than after-tax dollars. By using the
Cafeteria Plan to pay for expenses you're already incurring, you increase your take
home pay. The actual amount you save will depend on various factors including items
such as your marital status, the benefits you select, your federal income tax bracket, and
any state income taxes you pay.
Q. Exactly what benefits can be offered as part of a Cafeteria Plan?
A. A plan can offer some or all of the allowable benefits listed below. You can select
the benefits that most suit your needs from those offered:
- Accident and Health Coverage
- Accidental Death and Dismemberment Coverage
- Cancer Insurance
- Dental Insurance
- Disability Insurance
- Hospital Indemnity Insurance
- Group Term Life Insurance
- Vision Care Insurance
- Dependent Care Reimbursement Plan
- Medical Reimbursement Plan (for non-covered medical, dental and vision
Q. What kind of medical expenses can be paid for by the medical reimbursement
A. The medical reimbursement plan covers medical expenses not covered or paid by
your group health insurance plan or any other similar reimbursement program. That
might include co-payments and deductibles, and other expenses such as drugs and
over-the-counter medicines (effective 1-1-2011 OTC requires a prescription), and
medical supplies, various doctor fees, hearing aids, vision care products such as
eyeglasses, contact lenses and solutions, and vision correction surgery (i.e lasik),
hospital bills, operations and related treatments and X-rays. Without the Cafeteria Plan,
these amounts are paid with after-tax dollars. By redirecting a portion of your salary to a
medical reimbursement plan, these same amounts are now paid with pre-tax dollars.
Q. When are salary redirections and benefits elected?
A. Your Cafeteria Plan operates on a 12-month period known as the plan year. Prior to
the beginning of each plan year, you select what benefits (if any) you want and how
much money you want to go to each benefit. It's important to be conservative when
deciding how much money to contribute each year so that you use up your entire
account during the year.
Q. Once the election is made, can I change my mind during the year?
A. Generally, no, you must wait until the next plan year. However, certain situations can
arise during the plan year which may allow a change of election. These situations
include events such as marriage, divorce, death, birth or adoption of a child, or changes
in employment for you, your spouse or dependents.
Q. What happens if there's money left in my account at the end of a year, and I have
no more reimbursement requests?
A. You forfeit the money in the account. This is why you need to make conservative
estimates of your reimbursable expenses prior to each plan year.
Q. Are there any employees that cannot participate in a Cafeteria Plan?
A. Partners in a partnership, members of a limited liability company, sole proprietors
and owners who own two percent or more of a Subchapter-S corporation can't
participate in a Cafeteria Plan. Your plan may also exclude other categories of
Q. Are there limits on how much I can elect to put into any single benefits?
A. There are limits that depend on the terms of your plan as well as the law. We'll
inform you of these limits during the open enrollment election period each year.
Q. Should I participate in the Cafeteria Plan?
A. Many employees have been faced with the same question, and have decided to join
the Cafeteria Plan because it made good sense. They could choose benefits most
suited to their needs and receive an increase in disposable income produced by
paying expenses through the Cafeteria Plan with pre-tax dollars.