When you use the same complex terminology in employee benefits handbooks, chances are people won’t grasp key information.

Solution: Write policies using the same language you’d use if you were trying to explain them to someone in person.

Use conversational English

When updating your benefits handbooks, grab a tape recorder and talk out descriptions of your various plans. Use the recording as a guide for how to write your policies. Chances are it contains the wording you’d use in a typical conversation with employees.

Example: It’s doubtful a worker with a flexible spending account reimbursement problem would come to you and say, “I thought there was a $400 balance in my Section 125 plan account. But this reimbursement provides me only a $150 benefit for a $350 qualified medical service.”

Chances are the person would say there was $400 left in his flex account, so his check was short $200.

Then you’d probably tell the employee to double check how much was originally left in his account with Payroll.

A useful shortcut

One best practice is to write to those employees who are at the lowest education and comprehension level.

Another tip: Never use two words when you can write just one (e.g., write “void” instead of “null and void”).

Here are several areas of flex accounts that often trip up employees:

• Contribution rates. More employees than you’d think are unclear about the actual meaning of a “pretax benefit,” like an FSA. Solution: Provide a concrete example for. For instance, ask employees how much they expect to pay for out-of-pocket medical expenses throughout the year, then show them how much they’d end up paying with tax.
  Example: Three hundred dollars in an FSA would end up being roughly $384 of taxable income. Seeing an actual dollar amount in connection to the FSA can go a long way with on-the-fence staffers. (Note: Make sure employees are well aware of the maximum dollar/maximum salary percentage that can be contributed to your FSA.)
• Eligible expenses. While most employees know that FSAs reimburse out-of-pocket costs that aren’t covered (i.e., co-pays, deductibles, vision, dental, etc.), some may not be aware that over-the-counter meds are also an eligible expense. The key is to ensure employees know all of the expenses their FSA money can be used to reimburse.
• Benefits combinations. Many firms offer additional pretax benefits, such as a 401(k). Encouraging employees to contribute to an FSA — even if it’s a very small amount — when your company has multiple pretax benefits gives them an added bonus. By placing money in multiple pretax benefits, employees effectively cut their taxable income.

Non-covered prescription drugs represent 43% of employees’ out-of-pocket medical expenses, according to a recent Kaiser Family Foundation study. Other top expenses:

• physician office visit copays and non-covered services (26%)
• dental care (17%), and
• vision services (9%).

In total, about 35% of employees’ total medical expenses per year are now paid out of pocket.

Employees in the top 20% for out-of-pocket costs cause 80% of the total medical claims at most organizations, the study finds. The top 5% alone account for nearly half (49%) of all medical costs.

Per person, the high-risk group of employees spends $7,000 per year, a figure expected to climb to $12,000 by 2015.

Here’s a strategy that many employers overlook: Many TPAs offer direct deposit as an FSA reimbursement option, rather than sending checks to participating employees. The choice is up to the participant. 

One of our readers from New Berlin, NY reports that simply adding this option for employees increased workers’ satisfaction with the turn-around of reimbursements, and offset a common reason some employees gave for not participating in the benefit. 

Several employees who hadn’t enrolled in past years because FSA contributions are deducted from their regular  paychecks were convinced to enroll because reimbursements went straight to their bank accounts, regardless of the amount deducted to date during the plan year.

Typically, TPAs require employees to submit a voided check if the employee wants the money direct deposited to a checking account. If the employee prefers the money go into a savings account, the employee typically has to submit a direct depost form from his or her financial institution.

Two common errors to watch out for:  Some employees make the mistake of submitting a deposit slip rather than a voided check. Administrators typically reject this form of enrollment, thereby delaying enrollment.  In addition, it’s up to the employee to notify the administrator promptly of any account changes or closings.

Many of the provisions of the act have an impact on how HR managers and their employers deal with employees on active duty. Here are the four key provisions:

Early withdrawal from 401(k), 403(b) or 457(b) Plans The new law makes permanent the exemption from the 10% early withdrawal penalty for withdrawals by reservists called to active duty for at least 180 days. A reservist is also permitted to recontribute the amount withdrawn to an individual retirement account within two years of the last day of active service.

Employment benefits for death or disability during active duty. In case of death during qualified military service, an employee must be treated as if he or she had died while actively employed (but not for purposes of benefit accruals). Many plans provide for accelerated vesting or ancillary death benefits upon death during active employment. As a result, plan administrators need to determine if this new requirement will retroactively vest any survivor benefits. This requirement applies to qualified plans, 403(b) plans and 457(b) plans.

The act also permits, but does not require, plans to treat a participant who dies or becomes disabled while performing qualified military service to be treated as if the participant had resumed employment. This will result in participants’ being credited with their time in military service for benefit accrual purposes. In addition, the act permits the employer to make up any employee contributions missed by such participants based on the participants’ actual contributions during the 12-month period immediately preceding the qualified military service.

Treatment of differential pay. Effective January 1, 2009, differential wage payments made to military personnel must be treated as W-2 wages (previously, these amounts were reported on Form 1099). As such, these payments are subject to federal income tax withholding and must be treated as compensation for determining contributions and benefits under the employer’s retirement plans.

An individual in qualified military service for more than 30 days and receiving differential pay must be treated as having a severance from employment, and therefore is eligible to receive a distribution of elective deferrals. However, if the individual takes a distribution, he or she will be barred from making elective deferrals or employee contributions for six months. This provision is effective for plan years beginning after December 31, 2008.

Health Flexible Spending Account payouts. The effective immediately, the Act allows – but doesn’t require — a healthcare flexible spending account to permit reservists called to active duty for 180 days or more to withdraw all or a portion of any unused money (notwithstanding the normal “use it or lose it” rule). The distribution of these funds must be made during the period from the date of call-up until the last day the benefits could normally be reimbursed for the plan year.