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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The IRS has provided further guidance on the use of debit cards, credit cards, and stored valued cards (cards) to reimburse participants in health flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs). Notice 2006-69, which amplifies IRS Rev. Rul. 2003-43 (see CCH Pension Plan Guide ¶19,948T ) also provides guidance on the use of cards to reimburse participants in dependent care assistance programs (DCAPs), including dependent flexible spending arrangements (dependent care FSAs).
The IRS guidance expands the approved methods for substantiating claimed medical expenses to include certain matches of multiple copayments and inventory information approval systems. Employers that adopt these methods also must comply with regulatory requirements, including employee certificationsand the adoption of meaningful correction procedures for amounts that are not automatically substantiated at the point-of-sale or within a reasonable time after the transaction.
The first additional substantiation method explained in the notice is the copayment match substantiation method. The copayment match substantiation method is permissible only at merchants or service providers that have health care-related merchant category codes. Under this method, a charge is fully substantiated and no further review is required if (1) an employer's accident or health plan requires copayments of a specific dollar amount, and (2) the employee's payment to a health care provider equals an exact multiple of not more than five times the amount of the copayment for the specific service (i.e., pharmacy benefit copayment or co-payment for a physician's office visit). In addition, if a health plan has multiple copayments for the same benefit, (e.g., tiered copayments for a pharmacy benefit), exact matches of multiples or combinations of the copayments (but not more than the exact multiple of five times the maximum copayment) will be fully substantiated.
Under the IRS guidance, an employer may also adopt a system by which debit and credit card transactions can be approved or rejected based upon inventory control information, such as stock keeping units (SKUs), with merchants who need not be health care providers. Card transactions using this method would be fully substantiated without the need for submission of a receipt by the employee or further review.
Under this method, when an employee uses the card, the merchant's system collects information about the items purchased using the inventory control information (e.g., SKUs). The system compares the inventory control information for the items purchased against a list of items, the purchase of which qualifies as expenses for medical care under Code Sec. 213(d). The Code Sec. 213(d) medical expenses are totaled and the merchant's or payment care processor's system approves the use of the card only for the amount of the Code Sec. 213(d) medical expenses subject to coverage under the FSA or HRA. If the transaction is only partially approved, the employee is required to tender additional amounts.
If the merchant, service provider, or other independent third-party at the time and point-of-sale provides information to verify to the employer (including electronically by e-mail, the internet, intranet, or telephone) that the charge is for a medical expense, the charge is fully substantiated. Similarly, the inventory information approval system satisfies the substantiation requirements for purposes of reimbursing an employee's Code Sec. 213(d) medical expenses without further review.
Additionally, under the guidance, any copayment amounts must be substantiated by a third party. Self-certification or self-substantiation of a copayment by an employee does not constitute the required substantiation under Code Sec. 105. However, under the new guidance, an employee's claim for payment or reimbursement under a medical reimbursement plan is fully substantiated if the employer is provided with information from an independent third party (such as an explanation of benefits from an insurance company (EOB)) indicating the date of the service and the employee's responsibility for payment. Such direct third party substantiation will obviate the need for submission of a receipt by the employee or further review.
Further, the notice provides guidance regarding the use of debit cards, credit cards and stored value cards to provide benefits under dependent care assistance programs, including dependent care FSAs. Under IRS proposed regulations, dependent care expenses may not be reimbursed until they are incurred and the services are actually provided, regardless of when the expenses are billed. However, according to the IRS, after an employee has paid the initial expenses to a dependent care provider and the services are provided, the employer, upon receipt of proper substantiation of the expenses, may make available through a payment card an amount equal to the lesser of (1) the previously incurred expense or (2) the employee's total salary reduction amount to date. The amount available through the card may be increased in the amount of any additional dependent care expenses only after the additional expenses have been incurred. The amount on the card may then be used by the employee to pay for later dependent care expenses.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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