Freedom Benefits University
Terminology used in small business benefit plans
The following list of definitions refers to the specific
usage of each term within the context of a Freedom Benefits
small business benefit plans for 2012. Many of the
definitions refer to a specific section within an employee
benefit document or a specific citation within other
sections of federal law. The intent of this
cross-referencing is to ensure consistent interpretation of
benefit plan provisions especially in the event of changing
We are pleased to discuss the meaning of any terminology
that remains unclear after reviewing the definition and
"Account(s)" means the Health FSA Accounts and the DCAP Accounts described in Section 7.5 for Health FSAs, and Section 9.5 for DCAPs. In some contexts, the term "Account(s)" may also include the record of HSA Contributions described in Section 8.4.
"Benefits" means the Premium Payment Benefits, the Health FSA Benefits, the HSA Benefits, and the DCAP Benefits offered under the Plan.
"Benefit Package Option" means a qualified benefit under Code § 125(f) that is offered under a cafeteria plan, or an option for coverage under an underlying accident or health plan (such as an indemnity option, an HMO option, or a PPO option under an accident or health plan).
“Cafeteria Benefit Plan” means an
employee benefit plan defined and governed by IRC 125 and
has the same meaning as the terms “Section 125 Plan” and
“Section 125 Cafeteria Benefit Plan” that may be used in
other supporting employee benefit plan documentation.
"Change in Status" has the meaning described in Section 12.3.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contributions" means the amount contributed to pay for the cost of Benefits (including self-funded benefits as well as those that are insured) as calculated under Section 6.2 for Premium Payment Benefits, Section 7.2 for Health FSA Benefits, Section 8.2 for HSA Benefits, and Section 9.2 for DCAP Benefits.
"Committee" means the Benefits Committee
appointed by the Board of Directors of employer.
"Compensation" means the wages or salary paid to an Employee by the Employer, determined prior to (a) any Salary Reduction election under this Plan; (b) any salary reduction election under any other cafeteria plan; and (c) any compensation reduction under any Code § 132(f)(4) plan; but determined after (d) any salary deferral elections under any Code § 401(k), 403(b). 408(k), or 457(b) plan or arrangement. Thus, "Compensation" generally means wages or salary paid to an Employee by the Employer, as reported in Box I of Form W-2, but adding back any wages or salary forgone by virtue of any election described in (a), (b), or (c) of the preceding sentence.
"DCAP" means dependent care assistance program.
"DCAP Account" means the account described in Section 9.5.
"DCAP Benefits" has the meaning described in Section 9.1.
"DCAP Component" means the Component of this Plan described in Article IX.
"Dependent" means any individual who is a tax dependent of the Participant as defined in Code § 152, with the following exceptions: (a) for purposes of accident or health coverage (to the extent funded under the Premium Payment Component, and for purposes of the Health FSA Component), (I) a dependent is defined as in Code § 152, determined without regard to subsections (b)(l), (b)(2), and (d)(l)(B) thereof; and (2) any child to whom IRS Rev. Proc. 2008-48 applies (regarding certain children of divorced or separated parents who receive more than half of their support for the calendar year from one or both parents and are in the custody of one or both parents for more than half of the calendar year) is treated as a dependent of both parents; and (b) for purposes of the DCAP Component, a dependent means a Qualifying Individual as defined in Section 9.3( c). Notwithstanding the foregoing, the Health FSA Component will provide benefits in accordance with the applicable requirements of any QMCSO, even if the child does not meet the definition of "Dependent."
"Dependent Care Expenses" has the meaning described in Section 9.3.
"Earned Income" means all income derived from wages, salaries, tips, self-employment, and other Compensation (such as disability or wage continuation benefits), but only if such amounts are includible in gross income for the taxable year. Earned income does not include (a) any amounts received pursuant to any DCAP established under Code § 129; or (b) any other amounts excluded from earned income under Code § 32(c)(2), such as amounts received under a pension or annuity or pursuant to workers' compensation.
"Effective Date" of this Plan has the meaning described in Section 1.1.
"Election Form/Salary Reduction Agreement" means the form provided by the Administrator for the purpose of allowing an Eligible Employee to participate in this Plan by electing Salary Reductions to pay for any of the following: Premium Payment Benefits, Health FSA Benefits, HSA Benefits, and DCAP Benefits. It includes an agreement pursuant to which an Eligible Employee or Participant authorizes the Employer to make Salary Reductions.
"Eligible Employee" means an Employee eligible to participate in this Plan, as provided in Section 3.1.
"Employee" means an individual that the Employer classifies as a common-law employee and who is on the Employer's W-2 payroll, but does not include the following: (a) any leased employee (including but not limited to those individuals defined as leased employees in Code § 414(n) or an individual classified by the Employer as a contract worker, independent contractor, temporary employee, or casual employee for the period during which such individual is so classified, whether or not any such individual is on the Employer's W-2 payroll or is determined by the IRS or others to be a common-law employee of the Employer; (b) any individual who performs services for the Employer but who is paid by a temporary or other employment or staffing agency for the period during which such individual is paid by such agency, whether or not such individual is determined by the IRS or others to be a common-law employee of the Employer; (c) any employee covered under a collective bargaining agreement; (d) any self-employed individual; (e) any partner in a partnership; and (f) any more-than-2% shareholder in a Subchapter S corporation. The term "Employee" does include "former Employees" for the limited purpose of allowing continued eligibility for benefits under the Plan for the remainder of the Plan Year in which an Employee ceases to be employed by the Employer, but only to the extent specifically provided elsewhere under this Plan.
"Employee-Only Health FSA Option" has the meaning described in Section 7.3(b).
"Employee-Plus-Children Health FSA Option" has the meaning described in Section 7.3(b).
"Employee Assistance Plan" means a
service provided by the Plan Adviser or another provider
appointed by the employer that is available to Employees and
the cost of the service is wholly or partially paid by the
"Employer" means employer, and any Related Employer that adopts this Plan with the approval of
employer Related Employers that have adopted this Plan, if
any, are listed in Appendix A of this Plan. However, for
purposes of Articles IX and XIV and Section 15.3, "Employer"
means only employer.
"Employment Commencement Date" means the first regularly scheduled working day on which the Employee first performs an hour of service for the Employer for Compensation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"FMLA" means the Family and Medical Leave Act of 1993, as amended.
"General-Purpose Health FSA Option" has the meaning described in Section 7.3(b).
"Grace Period" means the period that begins immediately following the close of a Plan Year and ends on the day that is two months plus 15 days following the close of that Plan Year.
"Health FSA" means health flexible spending arrangement, which consists of four options: the General¬ Purpose Health FSA Option; the Limited (Vision/Dental/Preventive Care) Health FSA Option; the Employee-Only Health FSA Option; and the Employee-Plus-Children Health FSA Option.
"Health FSA Account" means the account described in Section 7.5.
"Health FSA Benefits" has the meaning described in Section 7.1.
"Health FSA Component" means the Component of this Plan described in Article VII.
"High Deductible Health Plan" means the high deductible health plan offered by the Employer that is intended to qualify as a high deductible health plan under Code § 223(c)(2), as described in materials provided separately by the employer. The High Deductible Health Plan may or may not be the sole Medical Insurance Plan eligible for pre-tax Salary Reduction funding hereunder.
"HIPAA" means the Health Insurance Portability and Accountability Act of 1996, as amended.
"HMO" means the health maintenance organization Benefit Package Option under the Medical Insurance Plan.
"HRA" means a health reimbursement
arrangement as defined in IRS Notice 2002-45.
"HSA" means a health savings account established under Code § 223. Such arrangements are individual trusts or custodial accounts, each separately established and maintained by an Employee with a qualified trustee/custodian.
"HSA Benefits" has the meaning described in Section 8.1.
"HSA-Eligible Individual" means an individual who is eligible to contribute to an HSA under Code § 223 and who has elected qualifying High Deductible Health Plan coverage offered by the Employer and who has not elected any disqualifying non-High Deductible Health Plan coverage offered by the Employer.
"Limited (Vision/Dental/Preventive Care) Health FSA Option" has the meaning described in Section 7.3(b).
"Medical Care Expenses" has the meaning defined in Section 7.3.
"Medical Insurance Benefits" means the Employee's Medical Insurance Plan coverage for purposes of this Plan.
"Medical Insurance Plan" means the plan(s) that the Employer maintains for its Employees (and for their Spouses and Dependents that may be eligible under the terms of such plan), providing major medical type benefits through a group insurance policy or policies (with HMO and PPO options). The Employer may substitute, add, subtract, or revise at any time the menu of such plans and/or the benefits, terms, and conditions of any such plans. Any such substitution, addition, subtraction, or revision will be communicated to Participants and will automatically be incorporated by reference under this Plan.
''Open Enrollment Period" with respect to a Plan Year means the month of November in the year preceding the Plan Year, or such other period as may be prescribed by the Administrator.
"Participant" means a person who is an Eligible Employee and who is participating in this Plan in accordance with the provisions of Article III. Participants include (a) those who elect one or more of the Medical Insurance Benefits, Health FSA Benefits, HSA Benefits, DCAP Benefits, and Salary Reductions to pay for such Benefits; and (b) those who elect instead to receive their full salary in cash and to pay for their share of their Contributions under the Medical Insurance Plan (if any) with after-tax dollars outside of this Plan and who have not elected any Health FSA Benefits, HSA Benefits, or DCAP Benefits.
"Period of Coverage" means the Plan Year, with the following exceptions: (a) for Employees who first become eligible to participate, it shall mean the portion of the Plan Year following the date on which participation commences, as described in Section 3.1; and (b) for Employees who terminate participation, it shall mean the portion of the Plan Year prior to the date on which participation terminates, as described in Section 3.2.
"Plan" means the employer Salary Reduction Plan as set forth herein and as amended from time to time.
''Plan Administrator" means employer. The contact person is the Human Resources Manager for
employer, who has the full authority to act on behalf of the Plan Administrator, except with respect to appeals, for which the Committee has the full authority to act on behalf of the Plan Administrator, as described in Section 13.1.
“Plan Adviser” means Freedom Benefits. The contact person is Tony Novak, telephone and fax (800) 609-0683, email email@example.com. The plan adviser has the authority to perform services authorized by the
''Plan Year" means the calendar year (i.e., the 12-month period commencing January 1 and ending on December 31), except in the case of a short plan year representing the initial Plan Year or where the Plan Year is being changed, in which case the Plan Year shall be the entire short plan year.
''PPO'' means the preferred provider organization Benefit Package Option under the Medical Insurance Plan.
''Premium Payment Benefits" means the Premium Payment Benefits that are paid for on a pre-tax Salary Reduction basis as described in Section 6.1.
''Premium Payment Component" means the Component of this Plan described in Article VI.
"Prior Plan Year Health FSA Amounts" has the meaning described in Section 7.4(f).
''QMCSQ'' means a qualified medical child support order, as defined in ERISA § 609(a).
“Qualified Retirement Planning Services”
means an Employee Assistance Program that is intended to
qualify as a tax-free employee benefit under IRC 132.
''Qualifying Dependent Care Services" has the meaning described in Section 9.3.
"Qualifying Individual" has the meaning described in Section 9.3.
"Related Employer" means any employer affiliated with
employer that, under Code § 414(b), § 414(c), or § 414(m), is treated as a single employer with
employer for purposes of Code § 125(g)(4).
''Salary Reduction" means the amount by which the Participant's Compensation is reduced and applied by the Employer under this Plan to pay for one or more of the Benefits, as permitted for the applicable Component, before any applicable state and/or federal taxes have been deducted from the Participant's Compensation (i.e., on a pre-tax basis).
“Self-administered Plan” means that the Plan administrator is the same person or entity as the employer.
''Spouse'' means an individual who is legally married to a Participant as determined under applicable state law (and who is treated as a spouse under the Code). Notwithstanding the above, for purposes of the DCAP Component the term "Spouse" shall not include (a) an individual legally separated from the Participant under a divorce or separate maintenance decree; or (b) an individual who, although married to the Participant, files a separate federal income tax return, maintains a principal residence separate from the Participant during the last six months of the taxable year, and does not furnish more than half of the cost of maintaining the principal place of abode of the Participant.
"Student" means an individual who, during each of five or more calendar months during the Plan Year, is a full-time student at any educational organization that normally maintains a regular faculty and curriculum and normally has an enrolled student body in attendance at the location where its educational activities are regularly conducted.
“Thrift Savings Plan” means a
voluntary employee savings plan where an amount designated
by the employee is transferred to a savings or investment
account designated by the employee by the payroll processor
on an after-tax basis but prior to distribution of net wages
to the employee in the form of a pay check. The purpose is
to make a consistent and reliable savings option available
to employees. A Thrift Savings Plan is considered to be the
same as cash benefit under a Cafeteria Benefit Plan.