Reimbursement Accounts

Through FlexSolutions, A&B offers two special, voluntary accounts that can help you plan for certain health care and/or dependent care expenses, while at the same time possibly reduce your income taxes: the...

• Health Care Reimbursement Account (HCRA), and

• Dependent Care Reimbursement Account (DCRA).

Specifically, the...

• HCRA helps you pay for eligible health care expenses you incur on behalf of yourself or your eligible dependents (as defined by the IRS).

• DCRA helps you pay for the child or elder day care expenses you incur on behalf of an eligible dependent (as defined by the IRS) in order for you (or you and your spouse) to work or look for work.

The Reimbursement Accounts are individual accounts that reimburse you for the covered expenses outlined here. Normally you would pay these expenses out of your take-home pay after taxes have been deducted.

With the Reimbursement Accounts, however, you can reduce part of your pay before paying taxes, up to a maximum amount, and deposit this money into your account. You may also contribute any remaining pre-tax FS Credits to the Reimbursement Accounts. Then, when you (or your dependents) have an eligible expense, you may receive a tax-free reimbursement from the appropriate Account.

So, Reimbursement Accounts can help you two ways...

• First, they provide a convenient way to budget for certain health care and dependent care expenses; and

• Second, they can help reduce the taxes you pay!

This section provides detailed information about the Reimbursement Accounts. We also encourage you to refer to Benefit Basics for additional information pertaining to eligibility, effective dates, enrolling, coverage costs and changing your elections.

Please note that expenses for domestic partners and their children may not be eligible for reimbursement under the Reimbursement Accounts, unless they are tax dependents under IRS rules. As with other tax-related matters, you should consult a tax professional to learn what will work for your situation.

There are basically four steps to maximizing the advantages made possible through the Reimbursement Accounts...

As a new hire—and then each year during Open Enrollment—you decide if you want to participate in either or both Reimbursement Accounts during the coming year. Your election does not roll over automatically; you must actively enroll for each year in which you want to participate.

Before indicating your contribution amount, you should estimate how much you think your health care, and day care or elder care expenses will be for the coming year. (Each Open Enrollment, A&B provides "expense estimators" you can use to help you make this estimation.)

Then, decide how much you want to put into the applicable pre-tax Reimbursement Accounts for the Plan Year. Note that contribution amounts are subject to the Account limits as described under "Contribution Limits" of the Health Care and Dependent Care sections, respectively. If you enroll...

• As a new hire, the amount you contribute may be used for expenses you incur after your date of hire through December 31.

• During Open Enrollment, your contribution amount may be used for expenses you incur starting the following January 1 through December 31.

Once you enroll, your contributions will be deducted from your pay in equal installments during the Plan Year, before Federal, state and Social Security taxes are withheld. These pre-tax dollars are deposited into your Account(s) where they are available for reimbursement of your eligible expenses.

After incurring an eligible expense, you may submit a claim for reimbursement from the appropriate Account. Alternative methods for reimbursement will be described in your enrollment packet.

How The Accounts Can Help You

Reimbursement Accounts are like two benefits in one: First, they provide a convenient way for you to set money aside to pay for predictable expenses. Second, they can reduce the income taxes you pay.

• The HCRA lets you use the FlexSolutions credits and/or pre-tax dollars you contribute to pay for eligible medical, dental, and vision care expenses you or your eligible dependents incur, and which are not covered (or fully covered) by your health care plan.

• The DCRA lets you use the FlexSolutions credits and/or pre-tax dollars you contribute to pay for the day care or elder care of your legal dependents if the care is needed in order for you and your spouse (or you only if you are single) to work or look for work.

The table below illustrates potential tax savings for a married individual earning $50,000 annually who contributes 5% of earnings to the health care reimbursement account (HCRA). Tax savings will vary depending on your salary, health care expense amount, and tax filing status.

Note, the above example is an estimate based on 2008 tax tables and is shown for illustrative purposes only. The example assumes a married individual filing jointly, using the standard deduction and no other income. It does not include estimated state taxes or additional savings from pre-tax payroll deductions for health care premiums. Of course, the IRS also offers alternative tax credits and deductions for dependent care and health care expenses. These alternatives are discussed under The Health Care Account or Federal Tax Deduction? and The Dependent Care Account Or Federal Tax Credit?, respectively.

Other Important Facts To Consider

• Just as with your other FlexSolutions elections, the contribution amount you elect remains in effect the entire Plan Year. The only time you may change your Dependent Care contribution amount is if you have a qualifying change in status and you notify your local Human Resources representative within 31 days to adjust your contribution amount(s) accordingly. (For more details on status changes, see Changing Your FlexSolutions Elections During the Year.)

• The Reimbursement Accounts are "use it or lose it" benefits. You have until March 31 of the next year to file claims for expenses incurred through December 31 of the current year. Any money left in a Reimbursement Account after the close of this period must be forfeited according to IRS rules. Therefore, it is important to estimate your expenses carefully, and to track your usage of your Account(s)—you will receive periodic statements indicating your Accounts' activity and balance. (For additional information, see Reimbursement Account Rules.)

You may use a Health Care Reimbursement Account to reimburse yourself for any health care expenses the IRS considers tax deductible. Eligible expenses include any...

• Deductibles

• Copayments and coinsurance amounts

• Charges in excess of a health care plan's usual, customary and reasonable (UCR) benefit payment level (other terms, such as "reasonable" or "eligible" charges may also apply)

• Charges that exceed plan limits or maximums

• Charges for many common health care services or supplies that may not be covered or fully covered by your health plans.

These expenses may be incurred on behalf of yourself, or your eligible dependents, regardless of whether you or your dependents are enrolled in any of the FlexSolutions health care plans.

For more details on the types of expenses reimbursable through the Health Care Reimbursement Account, see Eligible and Ineligible Expenses.

Who Is Eligible

You are eligible to participate in the HCRA if you are eligible to participate in FlexSolutions, the Company's flexible benefits program, as defined in Who Is Eligible. There are no additional eligibility requirements for the HCRA, though for your dependents' expenses to be eligible for reimbursement, the dependents' must meet the IRS requirements of an eligible dependent.

Contribution Limits

You may contribute up to $5,000 each Plan Year to your HCRA. However, if you enroll, you must contribute at least $24 annually.

Because it is important to accurately estimate your eligible health care expenses, you may want to use the Expense Estimators A&B provides each Open Enrollment.

Eligible And Ineligible Expenses

The table below includes a partial listing of eligible and ineligible expenses. A more complete list of eligible expenses is included in IRS Publication 502, available from your local IRS office or on the IRS Website at http://www.irs.gov/formspubs .

Please be advised that the IRS can amend the list of eligible expenses at any time, with or without notice.

The Health Care Reimbursement Account Or Federal Tax Deduction?

Using the pre-tax HCRA is usually more advantageous than claiming health care expenses as income tax deductions. Here's why...

• You may only deduct health care expenses from your federal income taxes if your expenses in a given year are greater than 7.5% of your adjusted gross income. For example: if you earn $60,000 annually, you could only claim a deduction for the amount of expenses you incurred in excess of $4,500.

• In contrast, with the HCRA, you reap tax advantages with the first dollar you spend on health care expenses.

Keep in mind, however, that you may not receive reimbursement from your HCRA and claim a tax deduction for the same expenses. For more information, contact your tax advisor or the IRS. You should also know that because the amount you contribute to your HCRA will reduce the amount of Social Security taxes you pay, your contributions may slightly affect your Social Security benefits.

You may use the DCRA to pay the day care or elder care expenses you incur in order for you and your spouse (or you only if you are single) to work or look for work.

For a general listing of eligible and ineligible expenses, see below. For more detailed information about eligible dependent care expenses, you should obtain a copy of IRS Publication 503, available from your local IRS office, or on the IRS Website at www.irs.gov/formspubs.

Note: The DCRA may not be used to pay for the health care expenses you incur on behalf of your dependents. Such expenses may, however, be eligible for reimbursement through the Health Care Reimbursement Account.

Who Is Eligible

You are generally eligible to enroll in the DCRA if you are eligible to participate in FlexSolutions, the Company's flexible benefits program, as defined in Who Is Eligible. Current tax laws also require that you have an eligible dependent (as defined Additional Eligibility Rules below) and that you be one of the following...

• Single and working.

• Married and:

  • both you and your spouse work (or are looking for work)

  • your spouse is a full-time student for at least five months of the year, or

  • your spouse is mentally or physically disabled and unable to care for your eligible dependent(s).

• Divorced or legally separated and have custody of your child, even if your former spouse claims the child for income tax purposes. Generally, you must be able to claim the individual as a dependent on your tax return. However, special rules apply for children of divorced or separated parents. If you are divorced or separated, and provide at least partial support for your child, your child care expenses may be eligible. Also, while the parent with custody is usually able to claim dependent care expenses, you cannot do so if you have waived the right to claim your child as a dependent. You can find complete details about DCRA rules relating to children of divorced or separated parents in IRS Publication 503, available at your local IRS office or via the IRS Website at www.irs.gov/formspubs.

Contribution Limits

Generally, you may contribute as much as $5,000 in pre-tax dollars to your DCRA each year, depending on your marital and income tax filing status. If you decide to enroll, you must contribute at least $60 annually.

The table below summarizes the amount you may contribute. These maximums are the most you may contribute annually—regardless of how many months you actually participate. These maximums do, however, include any money you contributed during the same calendar year to a DCRA sponsored by a previous employer.

Eligible and Ineligible Expenses

The table below illustrates the most common eligible and ineligible dependent care expenses. For additional details, you should obtain a copy of IRS Publication 503, available from your local IRS office or on the IRS Website at http://www.irs.gov/formspubs.

Please be advised that the IRS can amend the list of eligible expenses at any time, with or without notice.

IRS Reporting Requirements

The IRS requires you to provide certain information about your day care provider on your federal tax return (Form 2441). (This form is available from your local IRS office or via the IRS Website at http://www.irs.gov/formspubs.) If you do not provide this information, the money you receive from your DCRA will become taxable income.

The amount of your DCRA contribution will be reported to the IRS, as required by law, and will appear on your W-2 Form.

The following information must be included on your federal tax return for each year in which you participate in a DCRA...

• The provider's name and address; and

• For care provided by an:

  • individual, the individual's Social Security Number; or

  • organization (or center), the organization's tax identification number, unless it is a non-profit organization, in which case you should write "tax-exempt" in lieu of providing the tax identification number.

The Dependent Care Reimbursement Account or Federal Tax Credit?

The DCRA is not the only tax-advantageous way to offset eligible day or elder care expenses—the IRS also offers a federal tax credit for dependent care expenses. Your tax filing status, income and number of dependents will determine which is the best method for you. Here are some general guidelines based on current tax law...

• Depending on your income level, you can take a tax credit equal to 20 or 35 percent of your annual dependent care expenses on your federal income tax return. These expenses are limited to $3,000 for a single dependent or $6,000 for two or more dependents receiving care.

• You can’t use both the DCRA and the tax credit for the same expenses. The IRS reduces your available tax credit by $1 for each $1 of reimbursement you receive from such an account. For example: If you have a single eligible dependent receiving care, and you receive $4,000 in reimbursement from your DCRA, you won’t be eligible for the tax credit since your $4,000 reimbursement is greater than the $3,000 IRS allowable tax credit.

Because tax laws are complex and change often, and affect individuals in different ways, we encourage you to discuss your situation with a qualified tax advisor.

The following information applies to both the Health Care and Dependent Care Reimbursement Accounts, as noted. It's important that you read this information before deciding to enroll in a Reimbursement Account, and that you refer to it periodically, so that you use the Reimbursement Accounts properly.

Reimbursement Account Rules

Health Care and Dependent Care Reimbursement Accounts are governed by a variety of IRS rules and restrictions. The following guidelines address some of these issues and may help you decide whether to participate.

Plan your expenses carefully—Reimbursement Accounts are "use it or lose it" benefits.

That is, you forfeit any money left in a Reimbursement Account after the end of the Plan Year. You may not carry any money over for use in the next Plan Year or receive a refund of your unused contributions. Note: any money that is forfeited is applied toward A&B’s cost of administering the Reimbursement Account program.

You have until March 31 of the following year to file claims for expenses you have incurred before December 31 of the current Plan Year (or, for the HCRA, before the date your employment ends, if applicable). For example, you will have until March 31, 2010, to file claims for expenses incurred through December 31, 2009.

You may not transfer money between pre-tax Accounts, nor may you use funds from your HCRA to pay for dependent care expenses (or vice versa).

If you want to reimburse yourself for eligible health care and day or elder care expenses, you must open both a HCRA and DCRA, respectively.

You may not claim a tax credit or deduction for any expenses for which you receive a reimbursement from a Reimbursement Account.

However, you may claim a tax credit or deduction for any expenses not reimbursed through an Account, subject to IRS rules.

Once you enroll in a pre-tax Reimbursement Account, you may not change your election or contribution levels for the rest of the year.

The only exception to this rule is if you have a qualifying change in status, and you notify your local Human Resources representative within 31 days of the status change. In this situation, you may change your DCRA election only—you may not change your HCRA election during the year for any reason. For more details, see Changing Your FlexSolutions Elections During The Year.

Because contributions to a DCRA or HCRA reduce your taxable income, your payroll taxes and Social Security contributions will be reduced.

The effect on your future Social Security benefits will generally not be great because they are based on your lifetime of covered earnings. For more information, check with your local Social Security Office regarding your particular situation.

Filing For Reimbursement

During the year, whenever you have an eligible expense, you can file a reimbursement request from the appropriate reimbursement account (claim forms are available on the "Forms" section of A&B's benefits website, www.flexab.com or the Company intranet). Keep in mind that you may only request reimbursement for expenses that were incurred before you file for reimbursement but after you enrolled in the applicable Account.

There are several options for you to choose how you want to be reimbursed:

• By check,

• By direct deposit to your checking account, or

• By using a special PayFlex MasterCard ("debit card"), which will pay for your expenses directly from your Reimbursement Account. Remember to keep all receipts for expenses that you pay for with the debit card. Claims are periodically subject to audit by the Claims Administrator; if you do not provide the requested documentation, your debit card may be inactivated and you may be asked to make reimbursement back to the Claims Administrator for the audited claim.

You may file as frequently as you want. When submitting a claim for reimbursement, be sure to accompany your claim with proof of payment, such as itemized bills or the "Explanation of Benefits" (EOB) form you received from your health care plan. Reimbursements will be processed daily and mailed to your home.

You will have until March 31 of the following year to file for expenses incurred in the previous year.

If you have any questions, you should contact PayFlex, the Reimbursement Account Administrator, at 800-284-4885, Monday through Friday, 8 a.m. to 5 p.m. Central Time.

Access To Your Account And Statements

You have 24-hour access to your account balances through PayFlex's website at www.payflex.com. For your first visit to the website following enrollment, enter your Social Security number as the member ID and your home zip code as the password; you will be asked to change your password for security purposes. You may also call PayFlex Participant Customer Service at 800-284-4885, Monday through Friday, 8 a.m. to 5 p.m. Central Time.

In addition, you will receive a statement for your Reimbursement Account(s) each quarter. This statement will summarize the activity of your Account. Your reimbursement checks will also include an Account summary.

When Your Participation Ends

Your Reimbursement Account contributions will stop if...

• Your employment with A&B ends,

• You are on an unpaid leave of absence and you have not prepaid your contributions or arranged to make after-tax contributions during your leave (see Qualifying Status Changes),

• You are no longer eligible to participate (see the applicable portions of this section and Who Is Eligible for eligibility information), or

• A&B terminates the Plan.

You will be able to receive reimbursement for any...

• Dependent care expenses incurred during the same Plan Year, up to the balance of your DCRA, and

• Health care expenses* incurred before your termination, up to the annual amount you elected to contribute to your HCRA.