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HomeMy WebLinkAboutPre-Tax Premium Plan Section 125 Plans ./ $ • ' ProcessWorksINc.=M the right source to out source° September 9, 2005 REC EIVE.® r r.._ V •-- Ms. Mary Wilson 1 01 03 44 * 411/w° w° City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 Dear Mary, Thank You for choosing ProcessWorks, Inc. as your Pre -Tax Premium Plan (PTP) service provider. Enclosed is your PTP Employer Reference Manual, which contains your legal documents and related materials. Please refer to the Pre -Tax Premium Plan Installation Guidelines located inside your PTP Employer Reference Manual and follow the step -by -step instructions. If you have any questions or need assistance at any time during your installation process, please feel free to contact us. Sincerely, ProcessWorks, Inc. Compliance Services Enclosures c: Bellus Insurance Services PROCESSWORKS, INC. MAILING ADDRESS: 262 789.8181 250 N. PATRICK BOULEVARD P.O. Box 2490 800 236.8187 SUITE 125 BROOKFIELD, WI 53008 -2490 FAX 262 879.0720 BROOKFIELD, WI 53045 -5876 www.processworksine.coui '.,,° — ' i''.1!- . ,,,:, ., ,„ %k Pre -Tax Premium Plan .,: I� ..,, „...„ ,.,„ Installation Guidelines ...... „ ,,-:,- , :- tiSM1` „,.. .... .., ,,.„.,. ...... -4 ... , .,...,, .. , .,„.. .. ,, .,. (amii ii.-,,,,, „, . . .:,, .. ,...., ,., ..,, ,,,, „ ,..,..: ,,.„ ,,..., .. - ,...; . ..., ,...,.. ‘,:....: 1 .: , ii-,.. , ... ryT ., se, ,,,,,„ ,,,,,,,,„..,,i. ..,, ( �~ , :,,, ..: ,• ,,,,,, Fk / :: .,, , ..., , .i. ........, , , .., r► ...„ '4 x \' `y. i ProcessWorks, Inc. .. © 2005 w wz Congratulations on your decision to take advantage of the benefits of the Pre -Tax Premium Plan (PTP). This workbook contains instructions to help you set up and maintain your Plan. The PTP Plan allows you to deduct employee portions of many employer- sponsored insurance premiums from your employees' paychecks before deductions are taken for FICA, federal, and in most cases, state and local taxes (please refer to the State Tax Chart enclosed in this packet). Plan Implementation Checklist (Check boxes when completed) Here are the steps for setting up your plan. Details are on the following pages. ❑ Step 1 Announce the plan to your employees. ❑ Step 2 Receive employee waivers (if any). ❑ Step 3 Perform nondiscrimination tests. ❑ Step 4 Change payroll system (after the first three steps are completed). ❑ Step 5 Adopt the legal documents and distribute the Summary Plan Description (SPD) ❑ Step 6 Recording requirements. ProcessWorks, Inc. will provide you with support and technical assistance. •• • • • • ProcessWorks/Nc: the right source to out source- 250 N. Patrick Boulevard, Suite 125 (53045 -5876) P.O. Box 2490 Brookfield, WI 53008 -2490 Call Center: (262) 789 -8181 Toll Free: (800) 236 -8187 Web site: www.processworksinc.com Call Center Hours: Monday — Friday 8 a.m. — 5:00 p.m. (Central Standard Time) 2 Following is a listing of insurance premiums that can or cannot be deducted from an employee's paycheck on a pre -tax basis. Pre -tax premiums: These policies CAN be deducted on a pre -tax basis: Employee portion(s) of employer- sponsored insurance premiums, or voluntary payroll deducted insurance coverage(s). This includes pre -FICA, pre- federal, and in most cases, pre -state and local taxes. * Health * Dental * Term life up to $50,000 (employee only) * Disability* * Accidental Death and Dismemberment (AD &D) * Vision * Cancer, catastrophic (non -cash value) * Intensive care (non -cash value) * Dread Disease (non -cash value) * Hospital Indemnity After -tax premiums: These policies CANNOT be deducted on a pre -tax basis. * Employee term life over $50,000 * Spouse and Children's term life * Universal life * Cancer /catastrophic (cash value) * Intensive care (cash value) * Dread disease (cash value) * Homeowner's * Personal automobile * Long term care policies *If disability premiums are paid with pre -tax dollars, any benefits received will be taxable. If premiums are paid with after -tax dollars, benefits will not be taxable. Not all Section 125 Pre -tax Premium plans are created equal. Setting up and maintaining a Pre -tax Premium Plan takes experience, expertise, and efficiency. You can look to Process Works, Inc. for all your Section 125 benefit plan needs. 3 STEP ANNOUNCE THE PLAN Before your plan's effective date, distribute an announcement letter to all employees. (Refer to your Plan Document for the effective date.) This packet contains two sample employee announcement letters using different salary amounts. Please choose the version that best fits your organization, then reproduce it on your company letterhead. Feel free to personalize the letter. STEP 2 RECEIVE EMPLOYEE WAIVERS (IF ANY) Any employees electing not to participate in your PTP Plan should complete the Pre -Tax Premium Plan Waiver Election before your plan's effective date. New employees must complete the form before their eligibility date. For any employee signing the Waiver Election, set up your payroll system to collect premiums on an after -tax basis. A Sample Waiver Election form is included in this workbook; just reproduce it and distribute as needed. Keep completed Waiver Elections with your company records. Any employee who waives out of the plan and in a later year wishes to participate must complete the section of the form titled Revocation of Pre -Tax Premium Plan Waiver Election before the new plan year starts. STEP 3 PERFORM NONDISCRIMINATION TESTS Nondiscrimination tests must be performed annually on your PTP Plan to make sure your plan stays in compliance. Nondiscrimination rules state that: * The number of eligible employees in the plan must be greater than the number of highly compensated employees, And, ,t The non - taxable benefits provided to key employees cannot exceed 25% of `g . the total non - taxable benefits provided to all employees. r* \, �'E_'' ��s' R `a s C {{M(. e i .4 � � ` f , yr�e P ,.: �` t p'AF 1 ::5. 4 DEFINITION OF "HIGHLY COMPENSATED "Members" are not eligible to participate in AND KEY EMPLOYEES" the plan. Refer to the enclosed Annual Governmental Requirements for the current highly Partnerships may sponsor Section 125 compensated and key employee definitions, programs for all employees. Partners are not and compensation figures. The eligible to participate in the plan. Also, the compensation figures are indexed every spouse of a partner cannot participate in the year by the Internal Revenue Service. plan. Nondiscrimination testing can be performed by Limited Liability Partnerships may sponsor Process Works, Inc. upon request, for an additional fee. Section 125 programs for all employees. Partners are not eligible to participate in the PARTICIPATION RULES plan, nor are their spouses. Sole- Proprietorships may sponsor Section "C" Corporations may sponsor Section 125 125 programs for all employees. The sole programs and all employees are eligible to proprietor is not eligible to participate in the participate, including shareholders who meet plan. The spouse may participate in the plan the definition of employees. It is important (and even cover the sole proprietor as a for the employer to be aware of the dependent) provided the spouse is a bona - possibility of discrimination problems when fide employee. The sole proprietor must be key and highly compensated employees able to establish that the coverage is participate unproportionately to non - highly extended to the spouse by virtue of the compensated employees. employment relationship, and that the value Sub - chapter S- Corporations may sponsor of coverage is reasonable in relation to the services rendered. Section 125 programs for all employees. Individuals owning 2% or more of a Sub- Non - Profits may sponsor Section 125 chapter S- Corporation may not participate in programs and all employees are eligible to the plan. Close relatives of a 2% or more participate. owner (spouse, children, grandchildren, and parents) are also ineligible. Municipalities may sponsor Section 125 programs and all employees are eligible to Limited Liability Corporations may sponsor participate. Section 125 programs for all employees. 10 r <.�� t ��E� r Ind Imp memo ono on loxes 5 Dear Employee, Our group benefit plan now allows you to pay your insurance premium contribution on a pre- tax basis. In other words, the money you pay to participate in our group insurance plan(s) will come out of your check before taxes are calculated, and therefore will not be subject to federal, Social Security, or (in most jurisdictions) state or local taxes. This will reduce your taxes, so you will end up with more take -home pay! The example below shows you an example of how the Pre -Tax Premium Plan will save you money: After -Tax Pre -Tax Deduction Deduction Annual Salary $ 20,000.00 $ 20,000.00 Employee Cost Share of Health Insurance Premium ($125 per month) 0.00 - 1,500.00 Taxable Income 20,000.00 18,500.00 Estimated Taxes - 4,130.00 - 3,820.00 Net Income After Taxes 15,870.00 14,680.00 Employee Cost Share of Health Insurance Premium ($125 per month) - 1,500.00 0.00 A nnual Take-Home Pay $ 14,370.00 $ 14,680.00 ! * . ,. 0 AC eke ;•t.,,, ...-�F i . .. Having your insurance premium(s) deducted pre -tax from your paycheck costs you nothing and puts extra money in your pocket. We've taken steps to automatically enroll all eligible employees. Each employee who participates in one of our insurance plan(s), and has a cost share to that insurance plan coverage, will automatically be enrolled in this pre -tax program. If you do not wish to participate, thereby paying your group sponsored insurance premiums with after -tax dollars, contact (INSERT H.R. MANAGER'S NAME) to sign the necessary waiver form by (INSERT DATE). Having your insurance premium(s) deducted pre -tax from your paycheck does not change any provisions of your current insurance coverage(s); it only affects the way you pay your contribution of the premiums. (INSERT COMPANY NAME) pays all the administrative expenses associated with this pre -tax plan. This plan is designed solely to benefit employees by reducing their taxable income and increasing their take home pay. It is important to know that once your insurance premiums are being deducted on a pre -tax basis, you cannot change your deduction until the start of the next Plan Year (INSERT DATE), unless you have a change in your family status, such as getting married, divorced, having a baby, etc. These days, every company is looking for ways to reduce taxes. The Pre -tax Premium Plan easily saves you money by reducing your taxable income. Sincerely, Dear Employee, Our group benefit plan now allows you to pay your insurance premium contribution on a pre- tax basis. In other words, the money you pay to participate in our group insurance plan(s) will come out of your check before taxes are calculated, and therefore will not be subject to federal, Social Security, or (in most jurisdictions) state or local taxes. This will reduce your taxes, so you will end up with more take -home pay! The example below shows you an example of how the Pre -Tax Premium Plan will save you money: After -Tax Pre -Tax Deduction Deduction Annual Salary $ 30,000.00 $ 30,000.00 Employee Cost Share of Health Insurance Premium ($125 per month) 0.00 - 1,500.00 Taxable Income 30,000.00 28,500.00 Estimated Taxes - 8,000.00 - 7,595.00 Net Income After Taxes 22,000.00 20,905.00 Employee Cost Share of Health Insurance Premium ($125 per month) - 1,500.00 0.00 Annual Take-Home Pay y 61-0)! $ 20,500.00 $ 20,905.00 • �. . 4 Y, Ab E - .P. " -i 6 1 - 0)! it, -' : 3 k d: f ... , +E , ,.. 1; ` ., Having your insurance premium(s) deducted pre -tax from your paycheck costs you nothing and puts extra money in your pocket. We've taken steps to automatically enroll all eligible employees. Each employee who participates in one of our insurance plan(s), and has a cost share to that insurance plan coverage, will automatically be enrolled in this pre -tax program. If you do not wish to participate, thereby paying your group sponsored insurance premiums with after -tax dollars, contact (INSERT H.R. MANAGER'S NAME) to sign the necessary waiver form by (INSERT DATE). Having your insurance premium(s) deducted pre -tax from your paycheck does not change any provisions of your current insurance coverage(s); it only affects the way you pay your contribution of the premiums. (INSERT COMPANY NAME) pays all the administrative expenses associated with this pre -tax plan. This plan is designed solely to benefit employees by reducing their taxable income and increasing their take home pay. It is important to know that once your insurance premiums are being deducted on a pre -tax basis, you cannot change your deduction until the start of the next Plan Year (INSERT DATE), unless you have a change in your family status, such as getting married, divorced, having a baby, etc. These days, every company is looking for ways to reduce taxes. The Pre -tax Premium Plan easily saves you money by reducing your taxable income. Sincerely, Pre -tax Premium Plan Waiver Election and Revocation of Waiver Election Waiver Election ❑ I hereby elect not to participate in the Pre -tax Premium Plan offered by my employer, — choosing instead to pay the amount of my required group insurance benefit contribution on an after -tax basis. I understand that: • I cannot change or revoke this benefit election until the first day of the next plan year, unless I have a change in family status (as determined by the Plan Administrator). • Before each new plan year begins, I will be offered the opportunity to change my election for the following plan year. If I do not complete and return a new election form at that time, I will be treated as having chosen to continue the election then in effect for the new plan year. By signing below, I certify that I have examined this Waiver Election and understand and agree to comply with the terms of the plan. Date Employee Signature Witness signature Employee Name Social Security Number Address City State Zip Code Revocation of Waiver Election ❑ I hereby revoke the foregoing Waiver Election, and elect to participate in the Pre -Tax Premium Plan offered by my employer. I understand and agree that my share of the cost of the group plan(s) will be deducted from my pay on a pre -tax basis and applied toward the cost of benefits under the group plan(s). This amount will be adjusted automatically with any change in such cost. Date Employee Signature Witness signature Employee Name Social Security Number Address City State Zip Code Pre -tax Premium Plan Classification and Concentration Tests Copy this page and perform these tests annually. Keep results of your passed tests. You do not need to send the results to ProcessWorks, Inc. Company name Plan Year ending date Today's date Use this form to determine whether your Pre -Tax Premium Plan fulfills the nondiscrimination requirements set forth in Section 125 of the Internal Revenue Code. Classification Test: Total number of eligible employees (a) (from the first payroll of the current plan year) Total number of eligible, highly compensated employees (b) Concentration Test: Total (annualized) pre -tax insurance premiums for all eligible employees (including eligible Key employees), who are participating in the current plan year. (c) Total (annualized) pre -tax insurance premiums for Key employees only, who are participating in the current plan year. (d) Divide d by c to determine the percentage of pre -tax premiums provided to the Key employees (e) Classification Test Results To pass this test, a must be greater than b. If your company fails the Classification Test, you can still sponsor a Pre -Tax Premium Plan, but your definition of eligibility may have to be broadened to include more employees. Concentration Test Results To pass this test, e must be less than 25 %. In other words, if your percentage is 24.99% or less, you pass. If your percentage is 25% or greater, the Key employees must reduce their pre -tax contributions to meet the test requirement. They can do this by paying a portion of their premiums on an after - tax basis. Please contact ProcessWorks, Inc. if you need assistance or further clarification. STEP 4 - ADJUST PAYROLL SYSTEM FICA (Social Security) Taxes. Pre -tax Please give these instructions to the person payments in a Section 125 plan are not who handles your payroll before the first pre- included as wages when determining an tax employee deduction. employee or employer's FICA tax contribution. Payroll Taxes. IRS Section 125 allows employee contributions to group insurance State and Local Taxes. Pre -tax payments plans to be deducted from gross income in a Section 125 plan are not included as before taxes are calculated. Taxable — for wages for most state and local taxes. Refer the purpose of federal, FICA, and (in most to the state tax chart located inside the front jurisdictions) state and local taxes — is based cover of this manual for further guidance on on the adjusted gross income after the the situation in your state, or contact your employee's group insurance contributions local state regulatory/advisory office. have been made. (See page 3 for list of allowable insurance premiums.) Workers' Compensation. The procedures concerning workers' compensation To calculate an employee's net monthly insurance vary by state. We recommend you take -home pay, subtract the insurance contact your local state regulatory/advisory contribution from the employee's gross office or seek legal counsel. wages, and apply payroll taxes to this adjusted gross income. Unemployment Insurance. Federal: Pre -tax payments in a Section 125 plan are not included as wages when Example: determining the Federal Unemployment Tax $2,083.33 Monthly gross income Act (FUTA). -50.00 Insurance contribution $2,033.33 Adjusted gross income State: The procedures concerning unemployment insurance vary by state. - 270.00 Federal withholding tax* Refer to the enclosed state tax chart for - 114.80 State & local withholding further guidance on the situation in your tax* (if applicable) state, or contact your local state - 155.55 FICA tax* regulatory/advisory office. $1,492.98 Net monthly take -home pay Annual W -2 Reporting. Group insurance contributions deducted from an employee's paycheck are never taxable income and *Based on estimates of current federal and state should not be included in the box for Wages, withholding rates and current FICA tax rate. Tips & Other Compensation on the W - form. 10 distributed to each employee within 120 days of the plan's effective date. Once the plan begins, the Summary Plan STEP 5 Description must be copied and distributed to any newly hired employees within 90 days of their participation in the plan. FINALIZE LEGAL DOCUMENTS Please use the Summary Plan Please go to the tab marked "Plan Description located behind the Document ". The Plan Document is your "Summary Plan Description" tab for legal document for your Pre -Tax Premium duplication purposes. Plan. It contains the legal and plan design parameters set forth in your Plan. Please review this document in its entirety; then sign the last page of the Plan Document. There is an additional copy of this signature page located inside the front cover of this STEP manual to be signed and returned to ProcessWorks, Inc. RECORDING REQUIREMENTS Located behind the signature page of the The IRS requires each employer with a Plan Document is the Adoption Section 125 plan to keep such records for Resolution. This document should be each year as may be necessary to approved and signed before the Plan determine whether requirements of Section effective date. There is also an additional 125 are satisfied. This packet is designed to copy of the Adoption Resolution located help you meet this requirement. inside the front cover of this manual to be signed and returned to ProcessWorks, Inc. The materials and statements in this packet An envelope has been included for your are intended to conform with current convenience. applicable law. Supplements to assist in compliance with applicable law as enacted Please go the tab marked "Summary Plan and /or amended from time to time will be Description ". The Summary Plan available from ProcessWorks, Inc. Description (SPD) is for employees. It explains the plan in terms the average The information in this packet is not employee can understand. By Department intended to provide legal or tax advice. You of Labor regulations, the Summary Plan should consult with your own legal and tax Description must be advisors to ensure compliance with applicable law. • ProcessWorks/Nc: the right source to out source - Is With You Every Step of the Way 11 • PLAN DOCUMENT AND ADOPTION RESOLUTION ❑ Review the Plan Document and Adoption Resolution in their entirety. ❑ Sign the last page of the Plan Document (also sign the additional copy that is located inside the front pocket of this manual). ❑ Sign the Adoption Resolution (also sign the additional copy that is located inside the front pocket of this manual). ❑ Return the additional signed copies of the last page of the Plan Document and Adoption Resolution to ProcessWorks, Inc. An envelope has been included for your convenience. • • © 2005 ProcessWorks, Inc. • • CITY OF WINTER SPRINGS PLAN DOCUMENT AMENDED AND RESTATED OCTOBER 1, 2005 PRESENTED BY: PROCESS WORKS, INC. • • The Employer recognizes that the Plan Document is an important legal document and that it has • been prepared based on ProcessWorks, Inc.'s understanding of the Employer's desired provisions. It may not conform to the Employer's situation and the Employer should consult with its attorney on the legal and tax implications of the Plan. The Employer is responsible for reviewing all legal documents. ProcessWorks, Inc. is not engaged in the practice of law or giving tax advice and cannot be responsible for the legal and tax aspects of the Plan nor its appropriateness for the Employer's situation. • • i ADOPTION INFORMATION PLAN NAME: City of Winter Springs Pre -Tax Premium Plan EMPLOYEE CLASSIFICATION: Full time employees working 30 or more hours per week. PLAN TYPE: Section 125 Pre -Tax Premium Plan • EMPLOYER NAME AND ADDRESS: City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 EMPLOYER FEDERAL TAX ID NUMBER: 59- 1026364 • PLAN NUMBER: 501 EFFECTIVE DATE: October 1, 2000 PLAN YEAR: October 1 — September 30 PLAN ADMINISTRATOR AND SPONSOR: City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 PLAN SERVICE PROVIDER: ProcessWorks, Inc. P.O. Box 2490 Brookfield, WI 53008 -2490 262- 789 -8181 • • PRE -TAX PREMIUM PLAN DOCUMENT Table of Contents Article Page ARTICLE 1 - ESTABLISHMENT AND PURPOSE OF THE PLAN 1 1.1 Establishment of Plan 1 1.2 Purpose of the Plan 1 1.3 Cafeteria Plan Status 1 Article 2 - Definitions and Construction 1 2.1 "Adoption Information" 1 2.2 "Cash in Lieu of Benefits" 1 2.3 "Code" 1 2.4 "Construction" 1 2.5 "Effective Date" 1 2.6 "Employee ", 1 2.7 "Employer ", 1 2.8 "Insurance Plan(s)" 1 2.9 "Participant 1 2.10 "Plan" 1 2.11 "Plan Administrator and Sponsor" 2 • 2.12 "Plan Year" 2 Article 3 - Eligibility and Participation 2 3.1 Eligibility 2 3.2 Commencement of Participation 2 3.3 Cessation of Participation 2 3.4 Reinstatement of a Former Participant 2 Article 4 - Elections and Procedures 2 4.1 Manner of Elections 2 4.2 When Elections Are Effective 3 4.3 Irrevocability of Elections 3 4.4 Employer Contributions, 5 4.5 Cash in Lieu of Benefits 5 4.6 Maximum Amount of Employer Contributions, 6 4.7 Selection of Benefits 6 4.8 Changes by Plan Administrator 6 Article 5 - Administration of the Plan 6 5.1 Plan Administrator 6 5.2 Plan Administrator's Duties 6 5.3 Examination of Records 7 5.4 Reliance on Tables, etc. 7 5.5 Nondiscriminatory Exercise of Authority 7 5.6 Indemnification of Plan Administrator 7 Article 6 - Nondiscrimination Rules 7 6.1 Eligibility 7 6.2 Nondiscriminatory Adjustments 7 • ARTICLE 7 - AMENDMENT AND TERMINATION OF THE PLAN 7 7.1 Amendment of the Plan 7 7.2 Termination of the Plan 7 ARTICLE 8 - MISCELLANEOUS PROVISIONS 8 8.1 Information to be Furnished 8 8.2 No Employment Guarantee 8 8.3 Limitation of Rights 8 8.4 Employer's Protective Clauses 8 8.5 No Guarantee of Tax Consequences 9 8.6 Social Security 9 8.7 Funding 9 8.8 Other - Salary- Related Plans 9 8.9 Applicable Law 9 8.10 Continuation of Coverage 9 8.11 Family and Medical Leave Act 10 8.12 Health Insurance Portability and Accountability Act 10 8.13 Uniform Services Employment and Reemployment Rights Act 10 8.14 Severability. 10 8.15 Annual Return 10 • • • ARTICLE 1 - ESTABLISHMENT AND PURPOSE OF THE PLAN 1.1 Establishment of Plan: The Employer hereby establishes this Plan for the benefit of its Employees. The terms of the Plan will be legally enforceable, and shall be administered for the exclusive benefit of Participants and their beneficiaries. 1.2 Purpose of the Plan: The purpose of this Plan as adopted by the Employer is to allow an eligible Employee to choose between (1) cash, (2) coverage under the Insurance Plan(s) on a nontaxable basis, and (3) coverage under the Insurance Plan(s) on a taxable basis. 1.3 Cafeteria Plan Status: The Plan is intended to qualify as a "Cafeteria Plan" under Section 125 of the Internal Revenue Code, and is to be interpreted in a manner consistent with the requirements of Section 125. ARTICLE 2 - DEFINITIONS AND CONSTRUCTION 2.1 "Adoption Information" means the document attached hereto, which is part of this Plan. 2.2 "Cash in Lieu of Benefits" means dollars provided by the Employer for each eligible Employee who waives out of health insurance coverage provided by the Employer. 411 2.3 "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.4 "Construction" words denoting the masculine gender shall include the feminine gender, the singular includes the plural and vice - versa, unless the context clearly indicates otherwise. 2.5 "Effective Date" means the Effective Date as set forth in the Adoption Information. 2.6 "Employee" means any individual employed by the Employer or where applicable, an affiliate of the Employer within the controlled group of the Employer under Section 414(b), (c) or (m) of the Code. 2.7 "Employer" means the Employer named in the Adoption Information. 2.8 "Insurance Plan(s)" means any insurance contract or self- funded plan the Employer maintains to provide certain benefits to the Employees or their beneficiaries and which are available to Employees that relate to participation under this Plan, and are paid for, in whole or in part, by the Employees. 2.9 "Participant" means an Employee of the Employee classification stated in the Adoption Information who meets the eligibility requirements under the Plan and is a Participant in accordance with Article 3. • 2.10 "Plan" means this Cafeteria Plan as set forth herein, together with the Adoption Information and any and all amendments and supplements hereto. If there is a conflict between this Pre -Tax Premium Plan and the regulations, the regulations will govern. 1 • 2.11 "Plan Administrator and Sponsor" means the person or entity named as Plan Administrator and Sponsor in the Adoption Information or such other person or entity as may be appointed from time to time by the Employer to supervise the administration of the Plan. If no person or entity is so named or appointed, the Employer is the Plan Administrator and Sponsor. 2.12 "Plan Year" means the 12 month period specified in the Adoption Information. Any year in which the Plan is in effect less than a 12 month period shall be termed a short Plan Year. ARTICLE 3 - ELIGIBILITY AND PARTICIPATION 3.1 Eligibility: All Employees of the Employee classification stated in the Adoption Information who are actively employed and who are enrolled in at least one Insurance Plan covered by this Plan are eligible to be a Participant in the Plan as of the Effective Date of this Plan. If hired after the Effective Date, an Employee of the Employee classification stated in the Adoption Information is eligible upon enrolling in an Insurance Plan which is covered by this Plan. 3.2 Commencement of Participation: Each Employee who is enrolled in at least one Insurance Plan (under the enrollment rules of the particular Insurance Plan) becomes a Participant on the later of (a) the Effective Date or (b) the date he becomes eligible to participate in any one of the Insurance Plans covered by this Plan. 3.3 Cessation of Participation: A Participant ceases to be a Participant as of the earlier of • (a) the date on which the Plan terminates, (b) the date on which he ceases to be an Employee eligible to participate under Section 3.1 or (c) the date on which a specific coverage or benefit is discontinued. 3.4 Reinstatement of a Former Participant: A former Participant becomes a Participant again if and when he meets the eligibility requirements of Section 3.1. ARTICLE 4 - ELECTIONS AND PROCEDURES 4.1 Manner of Elections: As to any Insurance Plan in which a Participant is enrolled (under the enrollment rules of the particular Insurance Plan), the Participant may elect under this Plan for any Plan Year one of the following three benefits: (a) Enrollment in the Insurance Plan on a pre -tax basis, with the Employee receiving coverage under the Insurance Plan on a nontaxable basis. The Participant elects this nontaxable benefit by enrolling in the Insurance Plan and not executing a "Pre -Tax Premium Plan Waiver ". (b) No enrollment in the Insurance Plan, with the Employee receiving his full compensation, unreduced for the cost of the Insurance Plan. The Participant elects this taxable benefit by not enrolling in the Insurance Plan. (c) Enrollment in the Insurance Plan on a post -tax basis, with the Employer treating the Employee as if he had received his full compensation, unreduced for ID the cost of the Insurance Plan, and purchased the coverage under the Insurance Plan on an after -tax basis. The Participant elects this taxable benefit by enrolling in the Insurance Plan and executing a "Pre -Tax Premium Plan Waiver ". 2 • 4.2 When Elections Are Effective: An election under Section 4.1(a) is effective for the entire period during which the Employee is enrolled in an Insurance Plan and which is not covered by a "Pre -Tax Premium Plan Waiver ". An election under Section 4.1(c) is effective for the period designated on the "Pre -Tax Premium Plan Waiver" form (but not prior to any pay period before the Participant has signed and delivered the form to the Plan Administrator). 4.3 Irrevocability of Elections: A Participant may not revoke or change an election for a particular Plan Year after that Plan Year has begun except as follows: (a) The Participant may file a "Pre -Tax Premium Plan Waiver" form with the Plan Administrator on or before the end of the Plan Year discontinuing his pre -tax Insurance Plan contribution effective as of the first regularly scheduled payday of the next following Plan Year; (b) Any Participant may change a Benefit election after the Plan Year (to which such election relates) has commenced and make new elections with respect to the remainder of such Plan Year if, under the facts and circumstances, the changes are necessitated by and are consistent with a change in status which is acceptable under rules and regulations adopted by the Department of the Treasury, the provisions of which are incorporated by reference, and permitted by the Administrator during the Plan Year pursuant to any temporary, proposed, or final regulation or ruling of the Internal Revenue Service. Notwithstanding anything herein to the contrary, if the rules and regulations conflict, then such rules and regulations shall control. • In general, a change in election is not consistent if the change in status is the Participant's divorce, annulment or legal separation from a spouse, the death of a spouse or dependent, or a dependent ceasing to satisfy the eligibility requirements for coverage, and the Participant's election under the Plan is to cancel accident or health insurance coverage for any individual other than the one involved in such event. In addition, if the Participant, spouse or dependent gains or loses eligibility for coverage, then a Participant's election under the Plan to cease or decrease coverage for that individual under the Plan corresponds with that change in status only if coverage for that individual becomes applicable or is increased under the family member plan. Regardless of the consistency requirement, if the individual, the individual's spouse, or dependent becomes eligible for continuation coverage under any available Employer's group health plan as provided in Code Section 4980B or any similar state law, then the individual may elect to increase payments under this Plan in order to pay for the continuation coverage. However, this does not apply for COBRA eligibility due to divorce, annulment or legal separation. Any new election shall be effective at such time as the Administrator shall prescribe, but not earlier than the first pay period beginning after the change in election is completed and returned to the Administrator. For the purposes of this subsection, a change in status shall only include the following events or other events permitted by Treasury regulations: (1) Legal Marital Status: Events that change a Participant's legal marital status, including marriage, divorce, death of a spouse, legal separation or • annulment; 3 • (2) Number of Dependents: Events that change a Participant's number of dependents, including birth, adoption, placement for adoption, or death of a dependent; (3) Employment Status: Any of the following events that change the employment status of the Participant, spouse, or dependent: termination or commencement of employment, a strike or lockout, commencement or return from an unpaid leave of absence, or a change in worksite. In addition, if the eligibility conditions of this Plan or other employee benefit plan of the Employer of the Participant, spouse, or dependent depend on the employment status of that individual and there is a change in that individual's employment status with the consequence that the individual becomes (or ceases to be) eligible under the plan, then that change constitutes a change in employment under this subsection; (4) Dependent satisfies or ceases to satisfy the eligibility requirements: An event that causes the Participant's dependent to satisfy or cease to satisfy the requirements for coverage due to attainment of age, student status, or any similar circumstance; and (5) Residency: A change in the place of residence of the Participant, spouse or dependent that directly affects eligibility for Benefit coverage. (c) Notwithstanding subsection (b), Participants may change an election for accident or health coverage during a Plan Year and make a new election that corresponds • with the special enrollment rights provided in Code Section 9801(f). Such change shall take place on a prospective basis. (d) Notwithstanding subsection (b), in the event of a judgment, decree, or order ( "order ") resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order defined in ERISA Section 609) which requires accident or health coverage for a Participant's child (including a foster child who is a dependent of the Participant): (1) The Plan may change an election to provide coverage for the child if the order requires coverage under the Participant's plan; or (2) The Participant shall be permitted to change an election to cancel coverage for the child if the order requires the former spouse to provide coverage for such child, under that individual's plan and such coverage is actually provided. (e) Notwithstanding subsection (b), a Participant may change elections to cancel accident or health coverage for the Participant or the Participant's spouse or dependent if the Participant or the Participant's spouse or dependent is enrolled in the accident or health coverage of the Employer (if available) and becomes entitled to coverage (i.e., enrolled) under Part A or Part B of the Title XVIII of the Social Security Act (Medicare) or Title XIX of the Social Security Act (Medicaid), other than coverage consisting solely of benefits under Section 1928 of the Social Security Act (the program for distribution of pediatric vaccines). If • the Participant or the Participant's spouse or dependent who has been entitled to Medicaid or Medicare coverage loses eligibility, that individual may prospectively elect coverage under the Plan if a benefit package option under the Plan provides similar coverage. 4 • (f) If the Participant's cost share of an Insurance Plan provided under the Plan increases or decreases during a Plan Year, then the Plan shall automatically increase or decrease, as the case may be, the Salary Redirections of all affected Participants for such Benefit. Alternatively, if the cost of a benefit package option increases significantly, the Administrator shall permit the affected Participants to either make corresponding changes in their payments or revoke their elections and, in lieu thereof, receive on a prospective basis coverage under another benefit package option with similar coverage (if available), or drop coverage prospectively if there is no benefit package option with similar coverage. A cost increase or decrease refers to an increase or decrease in the amount of elective contributions under the Plan, whether resulting from an action taken by the Participants or an action taken by the Employer. If the coverage under a Benefit is significantly curtailed or ceases during a Plan Year, affected Participants may revoke their elections of such Benefit and, in lieu thereof, elect to receive on a prospective basis coverage under another plan with similar coverage,or drop coverage prospectively if no similar coverage is offered. If, during the period of coverage, a new benefit package option or other coverage option is added, an existing benefit package option is significantly improved, or an existing benefit package option or other coverage option is eliminated, then the affected Participants may elect the newly -added option, or elect another option if an option has been eliminated prospectively and make corresponding election changes with respect to other benefit package options providing similar coverage. In addition, those eligible Employees who are not participating in the Plan may opt to become Participants and elect • the new or newly improved benefit package option. A Participant may make a prospective election change to add group health coverage for the Participant, the Participant's spouse or dependent if such individual loses group health coverage sponsored by a governmental or educational institution, including a state children's health insurance program under the Social Security Act, the Indian Health Service or a health program offered by an Indian tribal government, a state health benefits risk pool, or a foreign government group health plan. A Participant may make a prospective election change that is on account of and corresponds with a change made under the plan of a spouse's, former spouse's or dependent's employer if: (1) the cafeteria plan or other benefits plan of the spouse's, former spouse's or dependent's employer permits its participants to make a change; or (2) the cafeteria plan permits participants to make an election for a period of coverage that is different from the period of coverage under the cafeteria plan of a spouse's, former spouse's or dependent's employer. 4.4 Employer Contributions: The Employer shall make an Employer contribution to the Plan in the form of cash in lieu of health insurance coverage. All other Plan contributions are made by salary- reduction agreements between the Participant and the Employer. 4.5 Cash in Lieu of Benefits: The Employer shall determine the amount of Cash in Lieu of Benefits to which each Employee who meets the eligibility requirements of the health insurance coverage, shall receive. This cash benefit will be available to any eligible employee who chooses III not to enroll in the Employer sponsored health insurance coverage because they are covered elsewhere. Proof of other health insurance coverage is required for payment of Cash in Lieu of Benefits. 5 • 4.6 Maximum Amount of Employer Contributions: The maximum amount of Employer contributions available to any Participant under the Plan shall be the amount of the Participant's required premium for Insurance Plans in which the Participant enrolls. 4.7 Selection of Benefits: A Participant may choose under this Plan to receive his full compensation for any Plan Year to make salary reduction contributions for anyone or more of the eligible benefits provided by the company and covered by this Plan for the Plan Year. If an eligible Employee chooses to waive coverage in the Employer sponsored Health Insurance Plan provided for under this Plan for any Plan Year, said Employee shall be deemed as choosing to receive cash payments, provided he has proven to maintain health insurance coverage elsewhere. 4.8 Changes by Plan Administrator: If the Plan Administrator determines, before or during any Plan Year, that the Plan may fail to satisfy for such Plan Year any nondiscrimination requirements imposed by the Code or any limitation on benefits provided to highly compensated or key employees, the Plan Administrator shall take such action as deemed appropriate, under rules uniformly applicable to similarly situated Participants, to assure compliance with such requirements or limitations. ARTICLE 5 - ADMINISTRATION OF THE PLAN 5.1 Plan Administrator: The administration of the Plan shall be the responsibility of the Plan Administrator. It shall be the principal duty of the Plan Administrator to see that the Plan is • carried out, in accordance with its terms and subject to applicable law, for the exclusive benefit of persons entitled to participate in the Plan, without discrimination among them. 5.2 Plan Administrator's Duties: The Plan Administrator will have full power to administer the Plan in all of its details, subject to applicable requirements of law. For this purpose, the Plan Administrator's powers will include, but not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons receiving benefits under the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and (e) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing. Notwithstanding the foregoing, any claim which arises under the various Insurance Plan(s) shall • not be subject to review under this Plan, and the Plan Administrator's authority under Section 5.1 shall not extend to any matter as to which that administrator under any such other plan is empowered to make determinations under such plan(s). 6 • The Plan Administrator shall have full and complete discretionary authority to determine eligibility for benefits, to construe the terms of the Plan, and interpret the provisions of the Plan. Any final determination by the Plan Administrator shall be binding on all parties. If challenged in court, such determination shall not be subject to de novo review and shall not be overturned unless proved to be arbitrary and capricious based upon the evidence considered by the Plan Administrator at the time of such determination. 5.3 Examination of Records: Upon request the Plan Administrator will make available to each Participant his records under the Plan as pertain to him, for examination at reasonable times during normal business hours. 5.4 Reliance on Tables, etc.: In administering the Plan, the Plan Administrator will be entitled to the extent permitted by law to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by, or in accordance with the instructions of the administrators of the various Insurance Plan(s), or by accountants, counsel or other experts employed or engaged by the Plan Administrator. 5.5 Nondiscriminatory Exercise of Authority: Whenever, in the administration of the Plan, any discretionary action by the Plan Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. 5.6 Indemnification of Plan Administrator: The Employer agrees to indemnify and to defend to the fullest extent permitted by law any Employee serving as the Plan Administrator or • as a member of a committee designated as Plan Administrator (including any Employee or former Employee who formerly served as Plan Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorney's fees and amounts paid in any settlement) occasioned by any act or omission to act in connection with the Plan. ARTICLE 6 - NONDISCRIMINATION RULES 6.1 Eligibility: The Plan shall not discriminate in favor of any person in a manner which violates the nondiscrimination rules of Code Section 125. 6.2 Nondiscriminatory Adjustments: Any rejection of elections or reduction of contributions made by the Plan Administrator to prevent discrimination under the Plan shall be made on a reasonable and nondiscriminatory basis. ARTICLE 7 - AMENDMENT AND TERMINATION OF THE PLAN 7.1 Amendment of the Plan: The Employer has the right to amend the provisions of the Plan from time to time. The Employer also shall have the right to make any amendment retroactively which is necessary to bring the Plan into conformity with the Code. If any of the material terms of the Plan are affected, the Employer shall provide notice of any such amendment and a description of its effect (if any) to the Plan Participants. II I 7.2 Termination of the Plan: While the Plan is intended to be continued indefinitely, the Plan may be terminated at any time for any reason by an authorized officer of the Employer. 7 • ARTICLE 8 - MISCELLANEOUS PROVISIONS 8.1 Information to be Furnished: Participants shall provide the Employer and Administrator with such information that may reasonably be requested from time to time for the purposes of administration of the Plan. 8.2 No Employment Guarantee: Neither the establishment of the Plan nor any modification thereof shall be construed as giving to any Participant or other person any legal or equitable right against the Employer except as herein provided. Under no circumstances shall the terms of employment of any Participant be modified or in any way affected hereby. The maintenance of this Plan shall not constitute a contract of employment. Participating in the Plan will not give any Participant a right to be retained in the employment of the Employer. 8.3 Limitation of Rights: Neither the establishment of the Plan nor any amendment thereof, nor the payment of any benefits, will be construed as giving to any Participant or other person any legal or equitable right against the Employer or Plan Administrator, except as provided herein. In no event are the terms of the employment or service of any Participant modified or in any way affected by this Plan. 8.4 Employer's Protective Clauses: (a) Upon the failure of either the Participant or the Employer to obtain the insurance contemplated by this Plan (whether as a result of negligence, gross • neglect or otherwise), the Participant's benefits shall be limited to the insurance premium, if any, that remained unpaid for the period in question and the actual insurance proceeds, if any, received by the company or the Participant as a result of the Participant's claim. (b) The Employer's liability to the Participant shall only extend to and shall be limited to any payment actually received by the Employer from the insurer. In the event that the full insurance benefit contemplated is not promptly received by the Employer within a reasonable time after submission of a claim, then the Employer shall notify the Participant of such facts and the Employer shall no longer have any legal obligation whatsoever (except to execute any document called for by a settlement reached by the Participant). The Participant shall be free to settle, compromise or refuse to pursue the claim as the Participant, in his sole discretion, shall see fit. (c) With reference to any insurance benefits being offered, the Employer shall not be responsible for the validity of any insurance contract or the failure on the part of the insurer to make payments provided for under any insurance contract, or for the action of any person which may delay or render null and void or unenforceable, in whole or in part, an insurance contract. With regard to this paragraph, the following shall apply: (1) Once insurance is applied for or obtained, the Employer shall not be liable for any loss which may result from the failure to pay premiums to the extent premium notices are not received by the Employer. • (2) To the extent premium notices are received by the Employer, the Employer's liability for the payment of such premiums shall 8 • be limited to the amount of such premiums and shall not include liability for any other Toss which may result from failure to pay such premiums. (3) The Employer shall not be liable for the payment of any insurance premium or any loss which may result from the failure to pay an insurance premium if the benefits available under this Plan are insufficient to provide for the amount of such premium cost at the time it is due. In such circumstances the Participant shall be responsible for and see to the payment of such premiums. The Employer shall undertake to notify a Participant if available benefits under this Plan are insufficient to provide for an insurance premium but shall not be liable for any failure to make such notification. 8.5 No Guarantee of Tax Consequences: Neither the Plan Administrator nor the Employer make any commitment or guarantee that any amounts paid to or for the benefit of a Participant under the Plan will be excludable from the Participant's gross income for applicable tax purposes; or that any other applicable tax treatment will apply to or be available to any Participant. It shall be the obligation of each Participant to determine whether each payment under the Plan is excludable from the Participant's gross income for applicable tax purposes, and to notify the Employer if the Participant has reason to believe that any such payment is not excludable. 8.6 Social Security: A Participant's Social Security benefit may be affected by participating in this Plan. 8.7 Funding: Unless otherwise required by law, contributions to the Plan need not be placed • in trust or other type of segregated fund, or dedicated to specific benefits, but shall instead be considered general assets of the Employer. Furthermore, and unless otherwise required by law, nothing herein shall be construed to require the Employer or the Plan Administrator to maintain any fund or segregate any amount for the benefit of any Participant, and no Participant or other person shall have any claim against, right to, or security or other interest in, any fund account or asset of the Employer from which any payment under the Plan may be made. 8.8 Other - Salary - Related Plans: In most cases, any other salary- related employee benefit plans that are maintained or sponsored by the Employer are not affected by this Plan. Any contributions or benefits under such other plans with respect to a Participant shall, to the extent permitted by law and not otherwise provided for in such other plan, be based on his or her total compensation from the Employer, including any amounts by which his or her salary or wages may be reduced pursuant to the provisions of Section 4.1. 8.9 Applicable Law: The Plan shall be construed according to the Internal Revenue Code of 1986, as amended from time to time and as construed, interpreted and modified by regulations or rulings promulgated thereunder. The Plan is intended to constitute a Cafeteria Plan meeting the requirements of Section 125 of the Code. To the extent not inconsistent therewith, the Plan shall be construed according to the laws of the state where the Plan Administrator resides, as indicated in their address on the Adoption Information. 8.10 Continuation of Coverage: Notwithstanding anything in the Plan to the contrary, in the event any benefit under this Plan which is subject to the continuation coverage requirement of Code Section 4980B becomes unavailable to a Participant, said Participant shall be entitled to • continuation coverage as prescribed in Code Section 4980B. 9 • 8.11 Family and Medical Leave Act: Notwithstanding anything in the Plan to the contrary, in the event any benefit under this Plan becomes subject to the requirements of the Family and Medical Leave Act and regulations thereunder, this Plan shall be operated in accordance with Regulation 1.125 -3. 8.12 Health Insurance Portability and Accountability Act: Notwithstanding anything in the Plan to the contrary, this Plan shall be operated in accordance with HIPAA and regulations thereunder that are applicable. 8.13 Uniform Services Employment and Reemployment Rights Act: Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with USERRA and the regulations thereunder that are applicable. 8.14 Severability: If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provision had not been included herein. 8.15 Annual Return: In accordance with the rules of the Internal Revenue Service, the Employer shall file, if applicable, an annual return for the Plan on Form Series 5500. IN WITNESS HEREOF, this Plan has been executed and is effective as of the date set forth in the Adoption Information. • SIGN H= EMPLOYER NAME: BY: Signature and Title • 10 • CITY OF WINTER SPRINGS ADOPTION RESOLUTION • The undersigned, representing the City of Winter Springs, hereafter referred to as the "Employer ", does hereby consent to the following resolution: Whereas, the Employer previously adopted a Pre -Tax Premium Plan, pursuant to Section 125 of the Internal Revenue Code; and Whereas, the Employer is hereby adopting a restated plan allowing eligible employees to participate in the tax benefits of the program defined within the Pre -Tax Premium Plan, and as authorized by Section 125 of the Internal Revenue Code. Therefore, Be it Resolved, that the Employer hereby adopts the Pre -Tax Premium Plan, as amended and restated, effective October 1, 2005. • SIGN I Signature and Title Signature and Title Signature and Title ID • SUMMARY PLAN DESCRIPTION ® t ' {. a n I ®c p �� d 8 o •® a ® rer $� S fi g.. } yf t m , in n,�eas ® According to government regulations, the Summary Plan Description must be distributed to all employees who participate in the Pre -Tax Premium Plan in the following manner: ➢ If this is a new plan, the Summary Plan Description must be distributed to all employees who participate in the Pre -Tax Premium Plan within 120 days of the effective date of the plan. *See Note ➢ If a new employee is hired during the Plan Year, and chooses to participate in the Pre -Tax Premium Plan, a Summary Plan Description must be distributed to the new employee within 90 • days. *See Note *Note: It is suggested that you provide a Summary Plan Description to any employee who is eligible to participate in the Pre -Tax Premium Plan, including those who choose not to participate. You should also keep a record of employees who have received a copy of the Summary Plan Description. Use the Summary Plan Description in this section for duplication and distribution to employees. © 2005 ProcessWorkks, Inc. CITY OF WINTER SPRINGS SUMMARY PLAN DESCRIPTION AMENDED AND RESTATED OCTOBER 1, 2005 PRESENTED BY: PROCESS WORKS, INC. IMPORTANT INFORMATION PLAN NAME: City of Winter Springs Pre -Tax Premium Plan EMPLOYEE CLASSIFICATION: Full time employees working 30 or more hours per week. PLAN TYPE: Section 125 Pre -Tax Premium Plan EMPLOYER NAME AND ADDRESS: City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 EMPLOYER FEDERAL TAX ID NUMBER: 59- 1026364 PLAN NUMBER: 501 EFFECTIVE DATE: October 1, 2000 PLAN YEAR: October 1 — September 30 PLAN ADMINISTRATOR AND SPONSOR: City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 PLAN SERVICE PROVIDER: ProcessWorks, Inc. P.O. Box 2490 Brookfield, WI 53008 -2490 262- 789 -8181 SUMMARY PLAN DESCRIPTION Your Employer has amended the Pre -Tax Premium Plan that they previously adopted. The Pre -Tax Premium Plan is for the exclusive benefit of all eligible Employees. Your participation in the Plan is voluntary. The purpose of the Plan is for you to be able to reduce your taxable compensation by paying for your cost share of your Employer- sponsored Insurance Plan(s) before taxes, as qualified under Section 125 of the Internal Revenue Code and adopted by your Employer. The Plan Document is a formal document which sets forth the provisions of the program. This Summary Plan Description ( "SPD ") has been written in simple language to explain the major features of the Plan and your rights and obligations under the Plan. It is not meant to interpret, extend or change the Plan Document in any way. In case of a conflict between this SPD and the actual provisions of the Plan Document, the Plan Document will govern. Further, participation in the Plan shall not constitute a contract of employment. Your Employer has established this Plan with the intent that it be maintained for an indefinite period of time. Your Employer however, reserves the right to terminate and /or amend the Plan at any time. Your Employer may have to modify the Salary Reduction Contributions or elected benefits for specific Plan Participants to comply with certain nondiscrimination rules. If your election or benefits are affected, you will be notified as soon as possible. Please read this Summary Plan Description carefully so that you understand the provisions of the Plan and the benefits you will receive. Your Employer wants you to be fully informed while you are a Participant in the Plan. Keep this Summary Plan Description with your important records for future reference as it pertains to your participation in the Plan. Should you have any questions or are in need of more details, you may review the Plan Document retained at the offices of your Employer and the Plan Administrator during regular business hours. Upon written request to the Plan Administrator you may obtain a copy of the Plan Document at a small cost to you. TABLE OF CONTENTS Introduction .1 Definitions 1 Eligible Employee 2 Enrollment in the Plan 2 Change in Elections 2 Contributions to the Plan 4 Cash in Lieu of Benefits 4 Insurance Premium Account 4 Plan Administrator 5 Highly Compensated and Key Employees 5 Family and Medical Leave Act (FMLA) 5 No Guarantee of Tax Consequences 5 Termination of Participation 6 Summary Notice of Receipt 7 INTRODUCTION The Pre -Tax Premium Plan provided by your Employer allows you the opportunity to reduce your taxable earnings by setting aside part of your earnings before federal income taxes, Social Security, Medicare, and in most cases state and local taxes are withheld from your paycheck. DEFINITIONS To help you understand the contents of the SPD, listed below are several important terms used to define your participation, coverage and payment of benefits: Cash in Lieu of Benefits. The cash being allocated to each eligible employee who waives out of health insurance coverage provided by the Employer. Code. The Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. Effective Date. The date the Plan started as set forth in the Important Information. Employee. Any individual employed by the Employer or where applicable, an affiliate of the Employer within the controlled group of the Employer under Section 414(b), (c) or (m) of the Code. Employer. The Employer named in the Important Information. Important Information. The document attached which is part of this Plan. Insurance Plan(s). Any insurance contract or self- funded plan the Employer maintains to provide certain benefits to the Employees or their beneficiaries and which are available to Employees that relate to participation under this Plan, and are paid for, in whole or in part, by the Employees. Participant. Any Employee of the Employee classification stated in the Important Information who meets the eligibility requirements under the Plan and is a Participant in accordance with "Enrollment in the Plan ". Plan. The Pre -Tax Premium Plan which includes the Plan or Plans permitted under Section 125 of the Internal Revenue Code as adopted by your Employer. If there is a conflict between this Pre -Tax Premium Plan and the regulations, the regulations will govern. Plan Administrator and Sponsor. The designated person(s), or company responsible for the implementation, interpretation and administration of the Plan. Plan Year. The 12 month period specified in the Important Information. Any year in which the Plan is in effect less than a 12 month period shall be termed a short Plan Year. 1 Salary Reduction Contributions. The amount deducted from a Participant's paycheck for his cost share to the Employer- sponsored Insurance Plan(s) covered by this Plan. ELIGIBLE EMPLOYEE You are eligible to participate in the Pre -Tax Premium Plan if you are enrolled in at least one Insurance Plan sponsored by your Employer. Your Employer will notify you when you are eligible and if applicable, assist you in the enrollment process. ENROLLMENT IN THE PLAN Each Employee who is enrolled in any Employer- sponsored Insurance Plan(s) covered by this Plan will be automatically enrolled in the Pre -Tax Premium Plan. If you do not wish to participate, it is necessary to contact the Plan Administrator to sign the necessary waiver form prior to each Plan Year. CHANGE IN ELECTIONS You cannot change or revoke your election once the Plan Year has begun. Election changes are only permitted if you experience a qualified change in status. A qualified change in status is any event the Plan Administrator determines will permit an election change during the Plan Year pursuant to any temporary, proposed or final regulation or ruling of the Internal Revenue Service. Qualified change events which may allow you to change your election with respect to the remaining portion of the Plan Year include the following events or other events permitted by Treasury regulations: 1. Marriage, divorce, death of a spouse, legal separation or annulment; 2. Change in the number of dependents, including birth, adoption, placement for adoption, or death of a dependent; 3. Any of the following events for you, your spouse or dependent: termination or commencement of employment, a strike or lockout, commencement or return from an unpaid leave of absence, going out on or returning from a leave of absence qualified under the Family and Medical Leave Act, a change in worksite, or any other change in employment status that affects eligibility for benefits; 4. One of your dependents satisfies or ceases to satisfy the requirements for coverage due to change in age, student status, or any similar circumstance; 5. A change in the place of residence of you, your spouse or dependent that directly affects eligibility for benefit coverage; 6. A judgment, decree or court order resulting from a divorce, legal separation, annulment or change in legal custody including a Qualified Medical Child Support Order (QMCSO) that requires an insurance coverage change for your dependent(s); 7. You, your spouse or dependent become eligible or cease to be eligible for Medicare or Medicaid; 2 8. You, your spouse or dependent become eligible for continuation coverage under the Employer's qualified Insurance Plan as provided in Code Section 4980B or any similar state law; 9. Special enrollment rights provided by HIPAA; 10. The addition or elimination of a qualified benefit plan option offered by your Employer; and 11. Open enrollment period for your spouse or dependent under another employer's plan provided it affects your qualified Insurance Plan coverage. Any election change you make must be consistent with the reason such change was permitted as outlined under the rules and regulations adopted by the Internal Revenue Service. Election changes are consistent with status changes only if the change in status results in you, your spouse or dependent gaining or losing eligibility for coverage under an Insurance Plan qualified under this Plan or under a qualified insurance plan provided through your spouse's or dependent's employer. Your election change must directly correspond with that loss or gain of Insurance Plan coverage. If the change in status does not affect you, your spouse or your dependent's eligibility of that Insurance Plan, you cannot change your election. For example, requesting a change in your election purely for financial reasons is not allowable. There are detailed rules as outlined under the rules and regulations adopted by the Internal Revenue Service on when a change in election is deemed to be consistent with a "change in status." In addition, there are laws that give you rights to change accident and health coverage for you, your spouse, or your dependents. If you change coverage due to rights you have under the law, then you can make a corresponding change in your elections under the Plan. If any of these conditions apply to you, you should contact the Administrator. For your insurance premiums being contributed to the Plan, if there is a change in the premium expense(s) during the Plan Year, then we will automatically increase or decrease, as the case may be, your salary redirection election. If the cost increases significantly, you will be permitted to either make corresponding changes in your payments or revoke your election and obtain coverage under another benefit package option with similar coverage (if available), or revoke your election entirely. If the coverage under a benefit is significantly curtailed or ceases during a Plan Year, then you may revoke your elections and elect to receive on a prospective basis coverage under another plan with similar coverage (if available). In addition, if we add a new coverage option or eliminate an existing option, you may elect the newly -added option (or elect another option if an option has been eliminated) and make corresponding election changes to other options providing similar coverage. If you are not a Participant, you may elect to join the Plan. There are also certain situations when you may be able to change your elections on account of a change under the plan of your spouse's, former spouse's or dependent's employer. It is your responsibility to notify your Employer if you experience a status change during the Plan Year and correspondingly wish to change your election. Such notification must be received by your Employer within a reasonable amount of time of the change event occurrence. A reasonable amount of time may be defined as within 30 days of the change event. The effective date of your election change is the later of: (1) the date of the change in status event, or (2) the date you requested the change, except where HIPAA special enrollment rights apply. 3 If you so choose, you will be able to change your election each year, during open enrollment. If you choose not to participate on your first opportunity or during the open enrollment, you will have to wait until the next open enrollment period. If in a future Plan Year you no longer wish to have your insurance premium(s) automatically deducted pre -tax it is necessary for you to contact your Employer to sign the necessary waiver form prior to each Plan Year. CONTRIBUTIONS TO THE PLAN You are automatically enrolled in the Plan by simply having your insurance premiums deducted pre -tax. The money is automatically deducted from your paycheck each pay period (or such other periods as determined by your Employer). This means that you won't pay federal income taxes, Social Security, Medicare, and in most cases state and local taxes on this money. Your Social Security benefit may be affected because you are lowering your taxable income by participating in the Pre -Tax Premium Plan. This means that your Social Security benefits could be slightly reduced because of the decreased amount of compensation which is considered for Social Security purposes. In most cases your Pre -Tax Premium Plan participation will not affect any other benefits you receive from your Employer. Any other Employer- sponsored benefit plans that you participate in (to the extent permitted by law and the provisions of these other plans) shall be based on your total compensation received from your Employer. For further clarification on how your Pre -Tax Premium Plan participation may affect your other benefits, please see the Plan Administrator. Note that by paying for disability income insurance policies with pre -tax dollars through the Pre -Tax Premium Plan will cause any disability benefits payable to you under such insurance coverages to be taxable. CASH IN LIEU OF BENEFITS You are eligible for Cash in Lieu of Benefits if you are eligible for our health insurance plan and you choose to opt out of such coverage being offered by your Employer. Before you are eligible for Cash in Lieu of Benefits, you must also prove that you are covered by another form of health insurance. The amount of Cash in Lieu of Benefits available to each eligible employee will be determined on annual basis and in a non - discriminatory manner. INSURANCE PREMIUM ACCOUNT Your Employer will be automatically deducting your qualified insurance premium(s) on a pre -tax basis. By enrolling in any eligible Insurance Plan, on your effective date in such a plan, your taxable income will be reduced by your Employer deducting your insurance premium contributions pre -tax from your paycheck, and then your Employer pays it to your insurance company or places it into an account to finance a self- funded plan. These insurance premiums can be for your qualified Employer- sponsored health, dental, vision, group term life insurance (up to $50,000 death benefit coverage), disability, accident, cancer and intensive care insurance plans. The government from time to time has created health insurance tax credits to subsidize the cost of dependent coverage for low- income individuals. You may want to contact your 4 financial advisor to determine the tax savings available to you through this Pre -Tax Premium Plan. PLAN ADMINISTRATOR The Plan Administrator has full and complete discretionary authority to interpret the provisions of the Plan. All decisions of the Plan Administrator will be made in good faith and will be binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the Plan Administrator will make adjustments as it considers fair and practicable. HIGHLY COMPENSATED AND KEY EMPLOYEES Under the Internal Revenue Code, "highly compensated employees" and "key employees" generally are Participants who are officers, shareholders or highly paid. If you are within these categories, the amount of contributions and benefits for you may be limited so that the Plan as a whole does not unfairly favor those who are highly paid, their spouses or their dependents. You will be notified by the Plan Administrator if your contributions are to be limited. FAMILY AND MEDICAL LEAVE ACT (FMLA) If your Employer is subject to the requirements of the Family and Medical Leave Act, and you take leave under the Family and Medical Leave Act, you may revoke or change your existing elections for health insurance. If your coverage terminates, due to your revocation of the benefit while on leave or due to your non - payment of contributions, you will be permitted to reinstate coverage for the remaining part of the Plan Year upon your return. If you continue your coverage during your unpaid leave, you may pre -pay for the coverage, you may pay for your coverage on an after -tax basis while you are on leave, or you and your Employer may arrange a schedule for you to "catch up" your payments when you return. No GUARANTEE OF TAX CONSEQUENCES You may want to talk to your financial advisor to see what potential tax implications are involved when participating in the Pre -Tax Premium Plan. The Plan Administrator cannot make any representations or guarantees relating to your particular tax situation. Neither the Plan Sponsor nor the Plan Administrator make any guarantees of federal, Social Security, Medicare and, if applicable, state and local tax consequences. Each Employee is responsible for making the decision to participate based on their own judgement. 5 TERMINATION OF PARTICIPATION Your participation in the Plan will terminate on the earlier of: 1. The day you terminate membership in a group or class of Employees eligible for benefits; 2. The date the Plan is terminated; or 3. The date a specific coverage or benefit is discontinued. If you terminate your participation due to a separation from service and are rehired during the same Plan Year, you may become a Participant again once you have met the eligibility requirements of the Plan. If you leave employment during the Plan Year, you will remain covered by the Insurance Plan(s), but only for the period for which you paid your share of the premium expense prior to your termination of employment. Under Federal law, you, your spouse and your dependents may have continuation of qualified Insurance Plan coverage rights. Your Employer will inform you of these rights if you terminate employment. Notwithstanding any provisions of this Plan to the contrary, this Plan shall be operated in accordance with HIPAA and USERRA regulations where they may apply. SUMMARY The money you earn is important to you and your family. You need it to pay your bills, save for the future and enjoy recreational activities. The Pre -Tax Premium Plan will help you keep more of the money you earn by lowering the amount of taxes you pay. The Plan is the result of your Employers' continuing efforts to find ways to help you get more for your earnings. 6 NOTICE OF RECEIPT PRE -TAX PREMIUM PLAN SUMMARY PLAN DESCRIPTION EMPLOYEE: I, have received the Signature Summary Plan Description as of Date 7 DISCRIMINATION TESTING ' y . , , { y e y .a if�y; s. , r k t ` uy ' ' E ' ry Ss 4� .±tw ar 6 c b !. I l ' .... 1: ru le b: ^c . , , ''v' N a'� a a f.s _ ., '`,._ tx : x A current Discrimination Test packet is included in this section. Please follow the instructions in the test packet to perform your discrimination tests. Also, as part of your Annual Compliance Service, a Pre -Tax Premium Plan discrimination test packet will be sent to you prior to the start of each new Plan Year. Note: Section 125 Plans are tested at the beginning of each Plan Year to ensure that the Plan passes. S © 2005 ProcessWorks, Inc. PROCESSWORKS, INC. • TO: Section 125 Pre -Tax Premium Plan (PTP) Clients FROM: ProcessWorks, Inc. Compliance Department _ RE: Annual Governmental Requirements COMPLIANCE SERVICES Part of ProcessWorks, Inc.'s original service for your Pre -Tax Premium Plan (PTP) was to assist you in the implementation process. Part of that implementation process was to provide your organization with legal Pre -Tax Premium Plan documents that met current Internal Revenue Service (IRS) and Department of Labor (DOL) guidelines. Once a Pre -Tax Premium Plan is implemented, it must be maintained to remain current with IRS and DOL regulations. Past experience has shown that the IRS and DOL periodically make regulation changes that require changes to be made to your Pre -Tax Premium Plan. Our Annual Compliance Service includes maintaining your plan to keep it current with IRS and DOL requirements and provides you with the resources to keep your Section 125 Plan in compliance. We automatically update your Plan Document and Summary Plan Description when required by the government. We also notify you of the following annual IRS and DOL requirements: • 1. Mandatory discrimination testing. Each year we notify you of the testing requirement. 2. The current discrimination testing parameters (these parameters can change every year). 3. Filing an IRS Form 5500. (Temporarily suspended by the IRS. We continue to monitor for changes.) 4. Distributing a Summary Annual Report. (Also temporarily suspended. We continue to monitor for changes.) REQUIRED DISCRIMINATION TESTING Please remember that by IRS regulations, you are required to annually perform discrimination tests on your PTP plan. We recommend the testing be completed at the beginning of each PTP plan year. In the event your plan fails the testing process, necessary adjustments can be made before the plan year is completed. You must keep the results of these tests in the legal file for your PTP plan. There are two discrimination tests that must be performed. The first test is the Classification Test; the second test is the Concentration Test. Before you can perform these tests, you must first determine which employees in your organization meet the definition of a highly compensated employee, and which employees meet the definition of a key employee (please refer to the enclosed current definitions to determine which employees are considered highly compensated and which employees are considered key). • There are two questions that must be answered to prove that your PTP plan is not discriminatory and passes both of the above - mentioned tests. 1. Does your plan allow both non - highly compensated employees and highly compensated employees to participate in the plan? If the answer is yes, then your plan most likely does not discriminate with regard to eligibility. Remember since all PTP dollars are paid with employees' pre -tax payroll deductions, an employer has no motivation to discriminate against any group or classification of employees, and should allow everyone to participate in the Pre -Tax Premium Plan. If your plan allows only for non - highly compensated employees to participate, your plan also does not discriminate due to eligibility. 2. Of those employees that participate in the plan, do the key employees receive more than 25% of the pre -tax benefits? To pass this test, the total pre -tax deductions being taken by the key employees must be less than 25% of the total pre -tax deductions being taken by all the employees. The answer is determined by identifying the key employees, then computing their share of the pre -tax insurance premium deductions for the current plan year. For example, if the total health insurance premiums paid pre- tax through the PTP plan for all employees equals $10,000 and the key employees pre -tax premiums are $1,000, or 10 %, then the key employees have not received more than 25% of the pre- tax benefits. • Example: Section 125 Pre -Tax Premium Plan 25% Test Sample Company Current Plan Year: January 1 - December 31, 2004 Today's Date: January 30, 2004 First Payroll for the Plan Year: January 15, 2004 Number of Pay Periods During the Plan Year: 24 Total number of eligible employees 25 (A) Total number of eligible highly compensated employees 2 (B) Total (projected) pre -tax insurance premium deductions to be taken from all the employees' paychecks to pay for their cost share of the insurance coverage ($600 of pre -tax insurance premium deductions were taken on the first payroll for the plan year x 24 pay periods) = $14,400 (C) Total (projected) pre -tax insurance premium deductions to be taken from the key employees' paychecks to pay for their cost share of the insurance coverage ($100 of pre - tax insurance premium deductions were taken on the first payroll for the plan year x 24 pay periods) = $ 2,400 (D) Divide (D) by (C) to determine the key employees percentage of participation. To pass the test, (E) must be less than 25% 16.67% (E) Attached is a worksheet for performing your discrimination tests for the current plan year. 2 Section 125 Pre -Tax Premium Plan Classification and Concentration Tests • Company Name It is necessary to use your most current payroll information to perform these tests. These tests determine if the current plan year for the Pre -Tax Premium Plan fulfill the nondiscrimination requirements as set forth in Section 125 of the Internal Revenue Code (see example on page 2). Current Plan Year: _ Today's date: Classification Test: Total number of eligible employees from the first payroll of the current plan year. (A) Total number of eligible highly compensated employees. (B) Concentration Test: Total (annualized) Pre -Tax insurance premiums for all eligible employees, including eligible highly compensated employees, who are participating in the current plan year. (C) • Total (annualized) Pre -Tax insurance premiums for only the eligible key employees who are participating in the current plan year. (D) Divide (D) by (C) to determine the percentage of Pre -Tax insurance premiums provided to the eligible key employees (E) 1. Classification Test: To pass the test, (A) must be greater than (B). If your company fails the Classification Test, you can still sponsor a Pre -Tax Premium Plan, but who is eligible for the plan may have to be adjusted. 2. Concentration Test: To pass the test, (E) must total less than 25 %. (i.e. if your percentage is 24.99% or less, you pass). If your percentage is 25% or greater, the key employees must lower their pre -tax deductions. To meet the test requirements, the key employees may have to pay a portion of the premiums on an after -tax basis. Once you have passed both tests, keep each year's passed test results on file. Please contact ProcessWorks, Inc. if you need assistance or further clarification. o 2005 ProcessWorks, Inc 3 Definitions for Plan Years beginning in 2005 • Highly Compensated — An employee has compensation over $95,000 during the preceding 12 -month period and is a member of the top 20% of all paid employees. To determine the top 20% of all paid employees, count the number of employees who worked at any time during the preceding 12 -month period. Subtract from this count the number of excludable employees as defined below. After removing any of the excludable employees, multiply the remaining employee count by 20 %. List any employee having compensation in excess of $90,000 in order of descending compensation (highest paid to lowest paid). Stop after listing the number of employees that corresponds to the top 20% of paid employees. Key Employee — Employee who at any time during the current plan year or one preceding plan year is an: 1) Officer with compensation over $135,000 2) Employee with more than 5% ownership 3) Employee with more than 1% ownership and compensation greater than $150,000. Important: Spouse or Dependent — If an employee is also a spouse or dependent of any employee who meets the definition of a highly compensated or key employee, the spouse or dependent must also be included in the highly compensated or key employee counts and premiums. More Definitions Compensation - Compensation refers to the employee's total annual compensation, including bonuses, commissions, and any salary reductions under a Pre -Tax Premium, 401(k) plan, simplified employee pension plan (SARSEP), or tax- sheltered annuity. Dependent - The term dependent means any of the following individuals over half of whose support was received from the taxpayer: • 1. A son or daughter of the taxpayer, or a descendant of either; 2. A stepson or stepdaughter of the taxpayer; 3. A brother, sister, stepbrother, or stepsister of the taxpayer; 4. The father or mother of the taxpayer; 5. A stepfather or stepmother of the taxpayer; 6. A son or daughter of a brother or sister of the taxpayer; 7. A brother or sister of the father or mother of the taxpayer; 8. A son -in -law, daughter -in -law, father -in -law, mother -in -law, brother -in -law, or sister -in -law of the taxpayer; or 9. An individual who at any time during the year was the spouse of the taxpayer - who for the year had as his principal place of residence the home of the taxpayer and is a member of the taxpayer's household. Eligible Employee — Those employees who meet the requirements to participate in the Plan. To determine eligible employees, refer to the Employee Classification listed on the Adoption Information page of your PTP Plan Document. Excludable Employees - You can exclude an employee from the total employee count if the employee meets any one or more of the following: 1) Has not completed six months of service; 2) Normally works less than 17 '/ hours per week; 3) Does not work more than six months during any year of employment; 4) Has not attained age 21; 5) Union employees covered by a collective bargaining agreement (this exclusion applies only if at least 90% of all employees are covered by a collective bargaining agreement and the Plan being tested covers only non -union employees); or 6) Employees who are non - resident aliens with no U.S. source of income. 0 More than 5% Owner — Employee who holds more than 5% ownership of the voting power of stock of the organization during either the current or preceding plan year. 1 • Officer - The determination whether an employee is an officer should be made on all the facts and circumstances, not necessarily the employee's title. See officer definition below. No more than 50 employees shall be treated as officers. If there are less than 50 employees who are treated as officers, no more than the greater of: a) three employees, or b) 10% of all employees will be treated as officers. Generally, the term "officer" means an administrative executive, including the president, vice president, general manager, treasurer, secretary and comptroller of a corporation and any other person who performs duties corresponding to those normally performed by those persons occupying the above positions. For example, all employees who have a title of vice president are not necessarily officers unless they have the authority of an officer. Similarly, an employee who has the authority but not the title would be considered an officer. Ownership - If the employer is a corporation, ownership is measured by voting power of stock. If the employer is a partnership or other form of business entity, ownership relates to an interest in the capital or profits of the organization. Stock owned by an employee's spouse, child(ren), grandchild(ren) or parents is treated as owned by the employee. Preceding Plan Year — This is the 12 -month period immediately prior to your current PTP Plan year. • • ® 2005 ProcessWorks, Inc. 2 • PRE -TAX VS. AFTER -TAX INSURANCE PREMIUMS ri A;;i1RATT 74.646601,1ini ;s- m 4 e e m,Af� Note: If you have any questions or if you have an insurance premium that is not listed and would like to know if it can be deducted pre -tax, contact our Call Center. • ® 2004 ProcessWorks, Inc. Pre -tax vs. after -tax Intro doe • PRE -TAX PREMIUMS VS. AFTER -TAX PREMIUMS 1: ti:Rt : The policies that CAN be deducted on a pre -tax basis: Employee portion(s) of employer- sponsored insurance premiums, or voluntary payroll deducted insurance coverage(s) (includes pre -FICA, pre - FEDERAL, and in most cases, pre -STATE and LOCAL taxes). ➢ Term life (up to $50,000 death benefit - employee only) ➢ Health ➢ Dental ➢ Vision ➢ Disability* ➢ Accidental death & dismemberment (AD &D) ➢ Cancer (non -cash value) ➢ Intensive care (non -cash value) ➢ Dread disease (non -cash value) . kit: The policies that CANNOT be deducted on a pre -tax basis: • ➢ Term Life (over $50,000 death benefit) ➢ Spouse and dependent life ➢ Universal life ➢ Long -term care ➢ Cash -value cancer ➢ Cash -value intensive care ➢ Cash -value dread disease *If disability insurance is paid with pre -tax dollars, the benefits received will be taxable. As the law stands today, if disability premiums are paid on an after -tax basis, the benefits will not be taxable. • © 2005 ProcessWorks, Inc. listing of pre-after tax eremites doe • FORM 5500 /SUMMARY ANNUAL REPORT v'tqf INAtrii In this section you will find information regarding the suspension of the filing requirements on Pre -Tax Premiums Plans and a review of Form 5500 filing requirements for welfare benefit plans. Note: As part of your Annual Compliance Service, we continue to monitor Form 5500 filing requirements and we will notify you if any changes occur. • S © 2005 ProcessWorks, Inc. 4: i • June 4, 2002 • • Process Works INC the right source to out source - Internal Revenue Service Issues New Temporary Form 5500 Filing Guidelines The Internal Revenue Service (IRS) recently released Notice 2002 -24, which temporarily suspends the annual Form 5500 filing requirements under certain circumstances. This temporary suspension is effective immediately and applies to all plan years for which Form 5500's were not previously filed. The suspension will remain in place while the IRS evaluates current filing procedures and considers replacing them with an electronic filing system. IRS Notice 2002 -24 applies to cafeteria plans, educational assistance plans, and adoption assistance plans. The notice creates exemptions under certain plan types and arrangements. The table on the backside outlines the exemptions and the corresponding Form 5500 requirements. The suspension of the Form 5500 applies to any plan year not yet filed, even those prior to 2001. The IRS has stated employers who have not filed in prior years should not request relief for failure to file. The filing requirements for other health and welfare plans (i.e. medical, dental, vision, life, STD, LTD, etc.) have not changed. If ProcessWorks, Inc. has completed these returns for you in the past, we will continue to send you information pertaining to these returns as they become due. ProcessWorks, Inc.'s Compliance Services Keeping pace with changes in regulations and other plan requirements can be overwhelming. ProcessWorks, Inc. actively tracks these changes relieving you of this burden. The significant impact of IRS Notice 2002 -24 is just one example. Many more regulatory and plan requirement changes are currently being considered by the IRS, Department of Labor, and other legislative entities. As part of ProcessWorks, Inc.'s annual compliance service to which you may subscribe, be assured we will notify you of these changes as they occur and update your plan's legal documents as necessary. Our suite of compliance services also includes informative newsletters, toll -free service center support, legal documents, regulatory changes, and assistance with discrimination testing issues. About ProcessWorks, Inc. Our corporate tag line says it all — Personalized Service. Powerful Solutions. Join the thousands of employers nationwide who have chosen ProcessWorks, Inc. to administer their flex spending accounts, COBRA, defined contribution health plans, medical reimbursement plans and transit and parking benefits. ProcessWorks, Inc. offers the highest level of customer service and the most advanced administration capabilities available. Our Internet and other ahead -of -the industry technologies help employers and employees alike save valuable time and money. ProcessWorks, Inc. is a full- service firm offering implementation, enrollment, administration and compliance services. Formerly The Flex Company of America, Inc. Mailing Address: P.O. Box 2490 Brookfield, WI 53008 -2490 • Telephone: 262.827.7030 888.868.2492 Toll -free Claims Fax: 800.760.3727 Web: www.processworksinc.com Form 5500 Filing Guidelines • T e of Benefit Plan -- fl Form 5500 Required For all Section 125 plans that are considered pre -tax premium only plans, IRS Notice 2002 -24 suspended the Internal Revenue Code 6039D Form 5500 filing requirement. A pre -tax premium only plan is defined as a Section 125 Plan that does not offer the medical expense, dependent day care, or private insurance reimbursement accounts. The Form 5500 is generally not required as long as the employee pre -tax salary reductions are: 1. Only used to pay insurance premiums, 2. Are immediately paid directly from the employer's general assets account to the insurance carriers or self - funded plan, and 3. Not held in a special account or transferred to a third party administrator or plan service provider for payment of premiums. � �" a ^ %'° ` .a. dz 9 4{ � If your plan offers the medical flex spending account, whereby employees set aside pre -tax monies to be reimbursed for medical, dental, vision, and prescription drug expenses, a Form 5500 may be required to satisfy the ERISA Title I requirements. Form 5500 exemption criteria: I. Did you have less than 100 medical flex spending account participants at the beginning of the plan year? 2. Was your plan operated on an unfunded basis? 3. Is your organization classified as a church or government entity? If so, your plan may be exempt from filing a Form 5500. Form 5500 filing requirements: 1. Did you have more than 100 medical flex spending account participants at the beginning of the plan year? 2. Was your plan operated on a funded basis? 3. Is your organization not considered a church or government entity? If so, your plan still has a Form 5500 filing requirement. eFO IRS Notice 2002 -24 suspended the Internal Revenue Code 6039D Form 5500 filing requirement for educational assistance plans qualified under Section 127. ._. IRS Notice 2002 -24 suspended the Internal Revenue Code 6039D Form 5500 filing requirement for adoption assistance plans qualified under Section 137. IRS Notice 2002 -24 made no changes in the Form 5500 filing requirements in regards to medical, dental, vision, life, STD, and LTD plans. • • ANNUAL COMPLIANCE SERVICES a �t @ B ° ' : � O - lid s , r '� ��s ri '' `� .' `"' R , k J nw,#:= , '— } ; Part of ProcessWorks, Inc.'s original service for your Pre -Tax Premium Plan (PTP) is to assist you in the implementation process. Part of that implementation process is to provide your organization with legal Pre -Tax Premium Plan documents that meet current Internal Revenue Service (IRS) and Department of Labor (DOL) guidelines. Once a Pre -Tax Premium Plan is implemented, it must be maintained to remain current with IRS and DOL regulations. Past experience has shown that the IRS and DOL periodically make regulation changes that require changes to be made to your Pre -Tax Premium Plan. Our Annual Compliance Service includes maintaining your Plan to keep it current with IRS and DOL requirements and provides you with the resources to keep your Section 125 Plan in compliance. • We automatically update your Plan Document and Summary Plan Description when required by the government. We also notify you of the following annual IRS and DOL requirements: 1. Mandatory discrimination testing. Each year we notify you of the testing requirement. 2. The current discrimination testing parameters (these parameters can change every year). 3. Filing an IRS Form 5500. (Temporarily suspended by the IRS. We continue to monitor for changes.) 4. Distributing a Summary Annual Report. (Also temporarily suspended. We continue to monitor for changes.) • © 2005 ProcessWorks, Inc. • OTHER SERVICES PROVIDED BY PROCESSWORKS, INC. Following is a list of services that ProcessWorks, Inc. offers. re ft totem el i T ore,. a at - -,- , ree d s , t� • n ctitit � 4 § -, t te; 4. .` . r`,, " 5 ,-, -'+-�` V xf � i I 1 i • A: , . ..,, ts--- ...IP" " , , 1 Att , L, . : *..- , . f- = - . , , ' - • -.. 4 Y .. ` © 2005 ProcessWorks, Inc. If you thought we were just about F l e x , you'd only be half right .. • ADMINISTRATION EXPERTISE • Section 125, A cafeteria or flex benefit plan is one of the most effective means of presenting a spectrum of employee benefits. It is a unique way of delivering benefits to employees. COBRA, Complete administrative services that take care of all required notifications and communications to employees for COBRA compliance. HRA, Employer -owned accounts used to reimburse employees for eligible medical related expenses on a non - taxable basis- Section 105, A medical reimbursement plan allows your organization to save on group health insurance premiums while maintaining a high quality benefit package for employees. Section 132(f), A qualified transit and parking benefit plan allows for work - related transportation and parking expenses to be paid with before -tax dollars. Form 5500 Filings, Preparation of health and welfare and fringe benefit plan Form 5500 filings and Summary Annual Reports. TECHNOLOGICAL EXPERTISE Process Works Online provides our clients with 24- hours -a -day, 7- days -a -week direct computer access to participants' information, both in view only and interactive modes, including employer aggregate reports, on -line completion of status change and submission of payroll files. 40 Process Works Online and Interactive Voice Response (IVR) provides 24- hours -a -day, 7- days -a -week Internet and phone access for participants to view account information including payroll deduction amounts, claims received, reimbursement check status, and account balances. Internet and Interactive Voice Response (IVR) Enrollment Capabilities are easy -to -use systems that provide 24- hours -a -day, 7- days -a -week access to employees to make flex spending account elections by the Internet or touch tone telephone (IVR) from the convenience of their homes or offices. Internet Claims (eClaims) is our exclusive online system that provides employees with the convenience of submitting their claims 24- hours -a -day, 7- days -a -week via the Internet. eStatus automatically sends an e-mail to employees when their claims are received and again when reimbursements are made. Flex Convenience Card taps into the power of the MasterCard® payment platform. Employees simply present their Flex Convenience Card at any qualified merchant location 24- hours -a -day, 7- days -a -week, and with a swipe of the card, the provider is immediately paid for the services directly from the employee's flex benefit plan funds. :; • • Process Works INC. the right source to out source- TAXATION OF SECTION 125 PLANS State Comparison Chart Overview The taxation of Section 125 plan benefits at the state level can be confusing for employers with multi -state operations, specifically because the states do not consistently follow the federal income tax and federal unemployment tax rules with respect to Section 125 plans. The following is a general description of the taxation of Section 125 plans at the state level. State Income Taxes Section 125 of the Internal Revenue Code directly sets out the federal income tax rules governing these plans. Under Section 125, an employee is NOT subject to federal income taxes when deferring qualified nontaxable expenses through a Section 125 plan, even though the employee could have elected to receive cash in lieu of these qualified benefits. This lowers an employee's taxable wages, in turn creating the "tax free" benefit. Two states - New Jersey and Pennsylvania do not completely follow Section 125 federal income non - taxation rules and tax employees on some benefits provided under Section 125 plans. In New Jersey, the value of an employee's option to receive cash is not taxable, as long as the employee does not elect to receive cash. All other employee salary reductions are taxable except for "premium conversion" or "premium only plans ". Salary reductions for these plans are not taxed if an employer requires employees to participate in a group health and /or group term life insurance program as a condition of employment and also requires employees to contribute toward the premium for such coverage. For a Section 125 plan to be pre -tax of the Pennsylvania state income tax, the plan must meet all the federal IRS requirements and then all employees' elections for insurance premiums (including health, dental and vision) and unreimbursed medical expenses are completely pre -tax to Pennsylvania state income tax. Pennsylvania does not allow employee salary reductions for babysitting /dependent care /elder care to be taken pre -tax. Those expenses are still subject to Pennsylvania personal income tax. For those employers with employees in Puerto Rico - Puerto Rico does not have any specific exclusions for Section 125 plans and requires that all Section 125 salary reductions be treated as taxable wages. Unemployment Insurance Taxes (FUTA & SUTA) Under the Federal Unemployment Tax Act (FUTA), employers are levied taxes as a percentage of wages up to a maximum taxable wage base. For purposes of FUTA taxes, qualified Section 125 plan payments (with the exception of salary reductions to a Section 401(k) cash -or- deferred arrangement) may be excluded from employees' wages, even though employees otherwise could elect to receive cash in lieu of qualified benefits. In the "U.I. Tax on Salary Reduction" column of the following chart, a "No" appears adjacent to states that follow FUTAs treatment of Section 125 plan payments. This is indicated in the "Comments" column by the statement "Follows FUTA ". This means that Section 125 plan benefits are NOT counted as wages in computing applicable State Unemployment Income (SUI) taxes. Many states depart from FUTA and require employers to count at least some types of qualified Section 125 plan benefits as wages. In the "U.I. Tax on Salary Reduction" column of the following chart, a "Yes" indicates that employee salary reductions to pay for benefits under a Section 125 plan must be counted as wages in computing applicable SUI taxes. The tax treatment of employer contributions (and, in some states, employee contributions) is described under "Comments ". In general, states follow one of two rationales for SUI taxation of Section 125 benefits: 1. Constructive Receipt - Under this rationale, the total amount of any salary reductions and any cash that an employee has the option to receive under the plan (regardless of whether the employee actually elects the cash option) must be treated as wages for SUI taxes. Hawaii is an example of a state that follows this rationale; or 2. Exclusion of specific benefits only - Under this rationale, Section 125 plan benefits are SUI taxable except for those benefits that are specifically excluded from wages under applicable SUI law. States following this tax rationale include Illinois and Oregon. Thus, in these states some benefits, typically health and group term life insurance are excluded from wages regardless of whether they are offered through a Section 125 plan. In addition, some states (e.g., Massachusetts) may distinguish between employer provided benefits and any part funded by employee salary reductions as to what portion is taxable. Details of the particular rationale under which Section 125 plan benefits are SUI taxable are included in the "Comments" column. Refer to the attached chart when setting up employees' pre -tax contributions in your payroll system. Please note that a "No" on the chart means that employee salary reductions are NOT counted as wages when calculating state income tax or state unemployment tax (SUTA) for Section 125 plan contributions. For further guidance in your state, contact your local state tax regulatory office. As an employer with employees in your particular state you can write your state tax office to request a formal determination of taxation on Section 125 plans. INCOME TAX U.I.TAX ON ON SALARY SALARY RE- STATE REDUCTION DUCTION COMMENTS Alabama No Yes Employer and employee contributions are not subject to state income tax to the extent employees elect nontaxable benefits. However, certain municipalities may include cafeteria plan contributions in taxable in- come. For state UI purposes, there are no specific provisions regarding cafeteria plans; taxability of employer contributions depends on the type of benefits provided. Employee salary reductions for the purchase of group -term life insurance are taxable if the employee has the option of receiving either insurance or cash. Alaska No No Alaska has no personal income tax. Cafeteria plan contributions are not taxable for state UI purposes. Arizona No No Follows FUTA Arkansas No No Follows FUTA. California No No Follows FUTA. Colorado No No Follows FUTA. Connecticut No Yes For state UI purposes, the total amount of employees' salary reduc- tions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Employer contributions are not taxable. Delaware No Yes State unemployment insurance law has no specific provision on cafete- ria plans, but payments for health and accident and group term life insurance benefits are specifically excluded from wages under state UI law and may be excluded even when provided through a cafeteria plan. Employee salary reductions for the purchase of group -term life insur- ance are taxable. District of Columbia No Yes For UI purposes, the total amount of employees' salary reductions and any cash that the employee has the option to receive (qualified cafeteria plans must include cash as an option) must be treated as wages. Florida No No Florida has no personal income tax. Employer payments for health and accident and group term life insurance benefits are specifically ex- cluded from wages under state UI law. Payments under a cafeteria plan are excluded from UI taxation if the payments would not be treated as wages outside the plan. Salary reductions to purchase group -term life insurance are excluded from taxable wages, eft Jan. 1, 199?. Georgia No No Follows FUTA. 94696 Reprinted with permission from The Payroll Administration Guide, The Bureau of National Affairs, Washington, DC. .! INCOME TAX U.I.TAX ON ON SALARY SALARY RE- STATE REDUCTION DUCTION COMMENTS Hawaii No Yes For state UI purposes, the total amount of employees' salary reduc- tions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Employer contributions are not taxable. Idaho No No Follows FUTA. Illinois No No State UI law has no specific provision on cafeteria plans, but payments for health and accident and group term life insurance benefits are specifically excluded from wages under state UI law and may be excluded even when provided through a cafeteria plan. Employee salary reductions for the purchase of group -term life insurance are not taxable unless they are taxable under FUTA. Indiana No No Follows FUTA. Iowa No Yes State UI law has no specific provisions on cafeteria plans, but employer contributions for health and accident and group term life insurance benefits are specifically excluded from wages under state UI law and may be excluded when offered through a cafeteria plan provided the employee. may not elect cash in lieu of the employer contribution. Employee salary reductions for such benefits are taxable for state UI. Kansas • No No Follows FUTA. Kentucky No Yes Certain Kentucky municipalities, including Lexington, require employ- ers to count cafeteria plan payments as wages for purposes of local income taxes. For state UI purposes, employer contributions are tax - able if the employee can elect to receive a cash payment prior to retirement or termination of employment for age, sickness, or disabil- ity (whether or not the employee chooses the cash option). Payments to provide for medical and hospital expenses are taxable unless they are received under the workers' compensation law or are made at least six months after termination. Employee salary reductions for the purchase of group -term life insurance are not taxable. Louisiana No No Follows FUTA. Maine No No Follows FUTA. Maryland No No Employee contributions under a cafeteria plan are excluded from UI taxation if the payments would not be treated as wages outside the plan. Contributions to pay for group term life insurance are excluded from wages. Massachusetts No Yes State UI law has no specific provision on cafeteria plans, but employer payments for health and accident and group term life insurance ben- efits are specifically excluded from wages under state UI law and may be excluded even when provided through a cafeteria plan. However, employee salary reductions or cash elections for such benefits still must be counted as wages for UI taxes. 9 - 16 - 98 Reprinted with permission from The Payroll Administration Guide, The Bureau of National Affairs, Washington, DC. 4. INCOME TAX U.I.TAX ON ON SALARY SALARY RE- STATE REDUCTION DUCTION COMMENTS Michigan No Yes For state UI purposes, the total amount of employees' salary reduc- tions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. For those Michigan cities with a local income tax, employee contribu- tions to deferred compensation (401(k)) plans are not subject to with- holding, following federal guidelines. Minnesota No Yes For state UI purposes, the total amount of employees' salary reduc- tions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Mississippi No No For state UI purposes, the total amount of employees' salary reduc- tions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) are not treated as wages. Employer contributions to a cafeteria plan are not UI taxable only if the plan is qualified under IRC *125, covers only employees, does not offer any cash benefits, and does not include a §401(k) feature. Missouri No No St. Louis and Kansas City do not require employers to count cafeteria plan payments as wages for purposes of local income taxes. Payments under a cafeteria plan are excluded from UI taxation if the payments would not be treated as wages outside the plan. For state UI purposes, employer contributions toward medical and hospital insurance are not taxable. Employee salary reductions to purchase group -term life in- surance are UI taxable. Montana No Yes State UI law has no specific provision relating to cafeteria plan ben- efits, but employer contributions toward health and accident benefits are not taxable, even if provided under a cafeteria plan. Employer contributions toward other cafeteria plan benefits and all employee salary reductions are UI taxable. For state UI purposes, the total amount of employees' salary reductions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Nebraska No No Follows FUTA. Nevada No Yes Nevada has no personal income tax. For state UI purposes, the total amount of employees' salary reductions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Employer contributions toward life insurance under a cafeteria plan are not UI taxable. New Hampshire No Yes New Hampshire has no personal income tax. For state UI purposes, the total amount of employees' salary reductions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) is taxable. Employer contributions are taxable • if employee has option of receiving cash. 9 Reprinted with permission from The Payroll Administration Guide, The Bureau of National Affairs, Washington, DC. • INCOME TAX U.I.TAX ON ON SALARY SALARY RE- STATE REDUCTION DUCTION COMMENTS New Jersey Yes Yes For purposes of New Jersey income and UI taxes, cafeteria plan payments are counted as wages to the extent that employees can elect cash. An exception applies to salary reductions under so- called pre- mium conversion plans. Under this exception, if the employer requires that employees participate in a group health and/or group term life insurance program as a condition of employment and also requires that employees contribute toward the premium for such coverage, salary reductions to pay for the benefit may be excluded from wages. The value of an employee's option to receive cash is not taxable, as long as the employee does not elect to receive cash. Employee deferrals, however, will still not decrease taxable wages. For state UI purposes, the total amount of employees' salary reductions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) Must be treated as wages. New Mexico No No For state UI purposes, employer contributions toward health and retirement plans are not taxable, even if provided under a cafeteria plan. New York No Yes State UI law has no specific provisions relating to cafeteria plan benefits, but employer contributions toward health and group -term life insurance are not taxable, even if provided under a cafeteria plan. Employer contributions toward other cafeteria plan benefits and all employee salary reductions are UI taxable. North Carolina No No Follows FUTA. North Dakota No Yes For state UI purposes, the total amount of any salary reductions and any cash that an employee has the option to receive (whether or not the employee elects the cash option) is taxable wages. Employer contribu- tions are not taxable. Ohio No No Certain Ohio municipalities, including Akron, Canton, Cincinnati, Cleve- land, Columbus, Dayton, and Pickerington, require employers to count cafeteria plan payments as wages for purposes of local income taxes. For state UI purposes, Ohio follows FUTA. Oklahoma No No State UI law has no specific provision on cafeteria plans, but employer and employee contributions toward health and accident benefits, term life insurance (provided the employee cannot elect cash instead of the insurance benefit or assign the benefit), and a Section 401(k) plan are specifically excluded from wages under state UI law and may be excluded even when provided through a cafeteria plan. Oregon No No State UI law has no specific provision on cafeteria plans, but employer payments and salary reductions for health and accident, group term life insurance benefits, and retirement are specifically excluded from wages under state UI law and may be excluded even when provided through a cafeteria plan. 8 - 16 - 00 Reprinted with permission from The Payroll Administration Guide, The Bureau of National Affairs, Washington, DC. INCOME TAX U.I.TAX ON ON SALARY SALARY RE- STATE REDUCTION DUCTION COMMENTS Pennsylvania No Yes For purposes of Pennsylvania income taxes, certain noncash fringe benefits in cafeteria plans qualifying under IRC Section 125 are ex- cluded from taxation, including health, eye, and dental care, group term life insurance, and, effective Jan. 1, 1998, personal use of em- ployer property (such as a car, recreational facility, and dependent care facility) if excludable as a working condition fringe benefit. Certain Pennsylvania municipalities, including Erie, Philadelphia, and Pitts- burgh, require employers to count cafeteria plan benefits as wages for purposes of local income taxes. For state UI purposes, there are no specific cafeteria plan provisions, but employer contributions toward health and life insurance generally are nontaxable, even if provided under a cafeteria plan. Employee salary reductions for the purchase of group -term life insurance are taxable on a case -by -case basis. Puerto Rico • Yes Yes For income tax purposes, only qualified pension plan employee defer- rals are tax -free. All other employee deferrals are taxed and are subject to withholding. For UI purposes, the total amount of employ- ees' salary reductions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Employer contributions are not taxable. Rhode Island No No Employer payments for health and accident and group term life insur- ance benefits are specifically excluded from wages under state UI and temporary disability insurance law, even when provided through a cafeteria plan. South Carolina No No Follows FUTA. • South Dakota No Yes South Dakota has no personal income tax. Benefits specifically ex- cluded from wages under South Dakota unemployment insurance law are not considered wages if they are provided as part of a cafeteria plan. However, cafeteria plan payments that are not specifically ex- cluded must be counted as wages when computing unemployment insurance taxes. Employee salary reductions for the purchase of group - term life insurance are taxable. Tennessee No Yes Tennessee has no income tax on wages. For state UI purposes, the total amount of employees' salary reductions and any cash that the employee has the option to receive (whether or not the employee chooses the cash option) is taxable. Texas No Yes Texas has no personal income tax. State unemployment insurance law has no specific provisions on cafeteria plans, but employer contribu- tions toward retirement, health and accident, and life insurance plans are not taxable, even if the benefits are provided through a cafeteria plan. Employee salary reductions for the purchase of group -term life insurance are taxable. Utah No No Follows FUTA. Vermont No Yes For state UI purposes, the total amount of employees' salary reduc- tions and any cash that the employee hag the option to receive (whether or not the employee chooses the cash option) must be treated as wages. Virginia No No Follows FUTA. 8-16-00 Reprinted with permission from The Payroll Administration Guide, The Bureau of National Affairs, Washington, DC. •. , INCOME TAX U.I.TAX ON ON SALARY SALARY RE- STATE REDUCTION DUCTION COMMENTS Washington No Yes Washington has no personal income tax. State UI law has no specific provisions on cafeteria plans, but employer contributions toward health and accident benefits and group -term life insurance are not taxable, even if provided under a cafeteria plan. Employee salary reductions for the purchase of group -term life insurance are taxable. West Virginia No Yes For state UI purposes, employees' elective contributions are counted as wages, and employer contributions are excluded. Wisconsin No No Follows FUTA. Wyoming No No Follows FUTA. 4 -14-99 Reprinted with permission from The Payroll Administration Guide, The Bureau of National Affairs, Washington, DC.