• What is the Flexible Benefits Plan?
• Why should I participate in this plan?
• What types of Flexible Spending Accounts are available?
• Who determines the Flexible Benefits Plans regulations?
• How do I enroll?
• If I don't want to participate in the flexible spending accounts, can I still make my premium contribution to health coverages with pre-tax dollars (Premium Conversion)?
• When can I change the amount I am contributing to a Flexible Benefits Plan?
• What happens if I don't use all the money I set aside?
• Who determines what kind of expenses can be reimbursed?
• How do I det reimbursed for my expenses?
• Does participation in this plan have any impact on my retirement plans?
• What impact does redirected salary have on social security taxes and benefits?
• Does the dependant care (child care) Flexible Spending Account impact the Child Care Credit?
• Can I use both the dependant care (child care) Flexible Spending Account and the Child Care Credit on my tax return?
• What is the maximum contribution to the dependent care (child care) Flexible Spending Account?
• Can I reimbursed for health care expenses and itemize those expenses on my tax return?
• Is there special documentation required for reimbursement of Orthodontia treatment?
• What happens if I go on a leave of absence and participate in the Flexible Benefits Plan?
• What happens if I leave my employer during the plan year, and participate in the Flexible Benefits Plan?

A Flexible Benefits Plan offers a unique way to help you increase your net income. With this plan, you can contribite your portion of the premium of an employer sponsored health insurance plan on a pre-tax basis. This is called premium conversion. In addition, you can put part of your pay into special accounts (Flexible Spending Accounts) to pay some of your health care and dependent care expenses not covered by other benefit plans. The amount that you redirect through the Flexible Benefits plan options is not taxed for Federal, State or FICA (Social Security) purposes.

You may currently pay for health and dependent care expenses with after tax dollars. Depending on your tax bracket, you could be paying an extra 25% to 35% in Federal, State and FICA taxes on these expenses. If you participate in the Flexible Benefits Plan, you will save taxes on these expenses, therefore, increasing your spendable income.

Two types of accounts are available: Health Care and Dependent Care. Money you redirect to your Health Care Flexible Spending Account may be used to pay expenses not currently reimbursed by your group health plan, such as copayments, deductibles, co-insurance, dental services, vision care, etc. A Dependent Care (child care) Flexible Spending Account is used for expenses incurred to enable you and/or your spouse to work. These expenses may be for child care or other qualified dependent care. The annual maximum amount you may redirect to your Dependent Care (child care) Flexible Spending Account is $5,000 ($2,500 if married filing separately). The annual maximum you may redirect to your Health Care Flexible Spending Account is set by the employee.

Eligible expenses are for these services received by you and qualifying dependents, even if not covered under the employer sponsored group health plan.

You may participate in both accounts or you may choose to participate only in one account or you may decline to participate.

When calculating your election, be sure to remember that the service must be received in the Plan Year. Reimbursement is based on when services are received, not paid.

This Plan is bound by IRS regulations. Guidelines can be found in IRS Code Section 125, 105, 106 and 129 and applicable IRS publications.

Flexible Benefit Plan participation is on a year-to-year basis. An annual open enrollment will be held, so you will have the opportunity to participate each year. If you are a plan participant and wish to continue, you must re-enroll each year.

You may authorize your premium contribution to be deducted from your pay automatically, before taxes are taken out. You do not have to enroll in the Dependent Care (child care) and/or Health Care Flexible Spending Accounts to take advantage of this tax-saving opportunity.

Your Flexible Benefits Plan contribution can be changed only during the annual open enrollment unless you have an IRS-qualified election status during the year. If this occurs, you may change your election. A change in election status includes, but is not limited to, marriage or divorce, birth or adoption, death, commencement or termination of your spouse's employment. Please review allowable changes provided in the Barney & Barney website. A participant may increase, decrease, cease or start up due to an IRS-qualified Election Status change. When an election status change has occurred, changes will be allowed up to 31 days after the change in family status or when you return to work from a leave. The new election will become effective the day the Change Form is signed and completed on or after the date of an Election Change.

Careful calculation of the amounts you want to redirect to each spending account is very important. Any money remaining in your account at the end of the year is forfeited back to your employer. This rule is a Internal Revenue Service "use it or lose it" regulation.

You will have an additional 90 days after the Plan Year ends to submit claims. Once that time period ends, any amounts remaining in the account will be forfeited.

You will be reimbursed from your accounts only for expenses that are allowed, according to the rules under Section 105 and Section 129 of the Internal Revenue Code. (Please review the attached “Eligible Health Care Expenses for the Health Care Flexible Spending Account” and “Dependent Care Flexible Spending Account Guidelines.”)

Expenses eligible for reimbursement under the Health Care Spending Account are for actual services received as itemized in Section 213 of the Internal Revenue Code. You will be liable for taxes on any reimbursed expenses that are disallowed by the Internal Revenue Service. (See Attachments for a list of allowable expenses).

Once you have incurred a health and/or dependent care expense, you must submit a claim for reimbursement to Barney & Barney, Contract Administrator. You must complete a Request for Reimbursement Form and attach an itemized statement from the provider of service. Claims will be processed according to the reimbursement schedule.

Your participation in the Flexible Benefits Plan does not impact any retirement plan(s) you may participate in, such as a 401(k).

Also, keep in mind that certain benefits based on salary will not be affected by your Flexible Benefits contributions. Benefits such as life and disability insurance plans will be based on your salary before any amount is deducted.

If you participate in the Social Security system, and earn less than the Social Security wage base (indexed each year), you will save taxes on the amount redirected to your accounts. However, any future benefits you might receive from Social Security may be slightly less. To determine the specific impact on your Social Security benefits, you should contact your tax preparer or advisor.

Any expenses reimbursed with pre-tax dollars cannot be applied to the tax credit on your income tax return. Generally, if your annual income exceeds $27,000 ($35,000 if married filing jointly), the Dependent Care (child care) Flexible Spending Account could be more beneficial to you. Each situation needs to be evaluated individually. Please contact your tax advisor or Barney & Barney for more specific information regarding the child care credit.

You may take advantage of both the child care credit on your tax return and the Dependent Care (child care) Flexible Spending Account IF IT IS NOT FOR THE SAME EXPENSE. An example: your annual expenses for the child care are $3,000. You may put $2,000 in the Dependent Care (child care) Flexible Spending Account and apply $1,000 to the child care tax credit. But if your redirected salary in the account is greater than or equal to $3,000 for one child, the child care credit cannot be used.

If you have two or more children in qualified child care, you may put $5,000 into the Dependent Care Flexible Spending Account and apply up to $1,000 (for a combined total of $6,000) for the tax credit. Remember to review the information carefully to determine whether the Dependent Care Flexible Spending Account is more beneficial.

The IRS allows a family maximum contribution to the Dependent Care (child care) Flexible Spending Account of $5,000, however, limitations do apply. The amount contributed to the Dependent Care (child care) Flexible Spending Account must be less than:

• Your taxable income, or
• If married, your spouse's taxable income, or
• $2,500 if married filing separate.

If your spouse currently has a Dependent Care (child care) Flexible Spending Account through his/her employer, the combined contributions cannot exceed $5,000 or $2,500 each, if filing separate returns per calendar year. In addition, children must be living with the filing parent during the time care is provided.

If your spouse is a full-time student, the IRS considers his/her earned income to be $250 a month for each dependent, to a maximum of $500 a month. Please review the Attachment concerning qualified dependent care.

Expenses that are paid with pre-tax dollars cannot also be claimed on your income tax return. Keep in mind you can only receive an IRS credit on your personal taxes for expenses which exceed 7.5% of your adjusted gross income, whereas you save tax dollars on every dollar contributed to the Flexible Benefits Plan.

The IRS requires that specific documentation be furnished when requesting reimbursement for orthodontia treatment. Since most orthodontia programs extend for long periods of time, sometimes beyond the Plan Year, we ask that the Orthodontist provide a document or a copy of the contract listing services and the cost of care for the employer sponsored Flexible Benefits Plan Year. Only those services incurred during the Plan Year are eligible for reimbursement (not beyond the Plan Year). Once you have furnished us with a copy of the contract or statement from the Orthodontist listing the type of treatment duration of treatment and payment schedule, you will need to submit a copy of the monthly payment receipt as incurred from the Orthodontist along with a completed Request for Reimbursement Form. (IF YOU PAY THE ORTHODONTIST UP FRONT FOR THE ENTIRE TREATMENT, REIMBURSEMENT WOULD ONLY BE LIMITED TO THE COST OF TREATMENT FOR EACH MONTH IN THE PLAN YEAR AS INCURRED. REIMBURSEMENT CANNOT BE MADE ON PREPAID SERVICES. Please contact Barney & Barney for details on reimbursement for orthodontia).

Contributions will cease during an unpaid leave of absence. Contributions will resume upon return to work.

Under the Premium Conversion and Health Care Flexible Spending Account you have the option of continuing or terminating coverage during an unpaid leave of absence as defined under the Family and Medical Leave Act. Options are detailed in the Summary Plan Description. Remember, in order to maintain coverage, your contribution must be paid by the end of the Plan Year.

If you participate in the Premium Conversion program and/or the Dependent Care (child care) Flexible Spending Account, and your employment is terminated in the middle of the Plan Year, contributions would cease. If you have a balance in your Dependent Care (child care) Flexible Spending Account, reimbursement of the balance would be available for services incurred during the Plan Year, even if expenses are for service incurred after termination, as long as the expenses qualify. (You and/or your spouse must be working.)

Under the Health Care Flexible Spending Account, there are three choices. You may pick one of the following methods:

1. Cease Contributions At Termination. If there is a balance in the Account, that balance can only be reimbursed for services incurred through the end of the month of your termination with the Employer. Any claims received for services after the end of the month of termination are ineligible.
2. Lump Sum Payment. Out of your final paycheck, you may authorize your Employer to deduct, on a pre-tax basis, the remaining amount of your annual election as a lump sum contribution. This method would allow you access to the full amount of your annual election for services incurred through the end of the Plan Year. This option is available only if there is a balance in your account at the point of termination of employment or eligibility.
3. Monthly Payment. You agree to pay your Employer the monthly amount of your election with after-tax dollars. This method allows access to the annual election throughout the Plan Year; however, it offers no tax-favored treatment on any amounts contributed after employment termination.