1. Purpose and Intent of the Plan
The Company maintains a Section 125 Cafeteria Plan (“Plan”) pursuant to Internal Revenue Code Section 125 and applicable federal regulations.
The purpose of the Plan is to allow eligible employees to elect certain qualified benefits through pre-tax salary reduction contributions. Participation in the Plan allows employees to receive certain benefits in lieu of taxable cash compensation, which may reduce taxable income, subject to applicable tax rules.
The Plan is intended to comply with all applicable federal tax laws and regulations. Only benefits and expenses permitted under the Plan and applicable Internal Revenue Service (IRS) rules may be paid or reimbursed on a pre-tax basis.
The Company has engaged Ignite Health to provide administrative services related to the Plan.
2. Pre-Tax Salary Reduction and Tax Implications
By electing benefits under the Plan, the employee acknowledges and agrees that:
Elected contribution amounts will be deducted from wages before federal income tax, Social Security (FICA), and Medicare taxes to the extent permitted by law.
Because taxable wages are reduced, participation in the Plan may result in:
Lower current federal income tax liability; and
A potential reduction in certain wage-based benefits, including but not limited to Social Security benefits, disability benefits, or unemployment compensation.
Elections made under the Plan are generally irrevocable for the plan year unless a permitted mid-year election change occurs in accordance with IRS regulations and the terms of the Plan.
Employees are responsible for carefully considering their elections and the potential financial impact of participation.
3. Flexible Spending Account (FSA) Provisions (If Applicable)
If the Plan includes a Health Flexible Spending Account (“Health FSA”) and/or Dependent Care Flexible Spending Account (“Dependent Care FSA”), the following provisions apply.
a. Election and Availability
Employees must elect an annual contribution amount prior to the beginning of the applicable plan year.
For Health FSAs:
The full annual election amount is available for reimbursement at the beginning of the plan year even though contributions are made through payroll deductions during the year.
For Dependent Care FSAs:
Reimbursements are limited to the amount actually contributed at the time a claim is submitted.
b. Timing of Eligible Expenses
Only expenses incurred during the applicable plan year (or any permitted grace period or carryover period under the Plan) are eligible for reimbursement.
Expenses must:
Be properly substantiated
Qualify under applicable IRS rules
Not be reimbursed from any other source or claimed as a tax deduction or credit
c. Use-It-or-Lose-It Rule
Flexible Spending Accounts are subject to the IRS “use-it-or-lose-it” rule.
Any unused balance remaining at the end of the plan year (or applicable grace period or carryover period, if offered) may be forfeited in accordance with IRS regulations and Plan terms.
Employees are solely responsible for estimating anticipated eligible expenses when making elections.
d. No Cash Withdrawal or Non-Qualified Use
FSA funds:
May not be withdrawn as cash
May not be used for personal or non-qualified expenses
May only be used in accordance with Plan provisions
Flexible Spending Accounts are not savings accounts and may not be transferred or assigned.
4. Eligible Medical Expenses – Health FSA
Health FSA reimbursements are limited to qualified medical expenses as defined under Internal Revenue Code Section 213(d) and permitted by the Plan.
General Definition
Qualified medical expenses are expenses paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any structure or function of the body.
Examples of Eligible Expenses
Examples may include:
Physician and specialist office visits
Hospital services and surgical procedures
Preventive care (physical exams, screenings, immunizations)
Diagnostic testing and laboratory services
Mental health and substance use disorder treatment
Chiropractic care and physical therapy
Prescription medications and insulin
Eligible over-the-counter medications as permitted by IRS rules
Durable medical equipment and supplies
Dental services including orthodontia
Vision services including glasses, contacts, and LASIK
Hearing aids and related supplies
Breast pumps and lactation supplies
Qualified medical transportation or mileage (subject to IRS limits)
Examples of Generally Ineligible Expenses
Expenses generally not eligible include:
Cosmetic procedures not medically necessary
Gym memberships or general fitness programs
Vitamins or supplements for general health
Teeth whitening
Expenses reimbursed by another plan or claimed as a tax deduction
5. Substantiation Requirements
All claims for reimbursement must be properly substantiated.
Required documentation must include:
Date the expense was incurred
Description of the service or item
Amount of the expense
Name of the provider or merchant
Acceptable documentation may include receipts, invoices, or explanations of benefits (EOBs).
Additional documentation may be requested by the Plan Administrator when necessary to confirm eligibility.
6. Improper Use, Non-Compliance, and Payroll Tax Recapture
The employee acknowledges and agrees that:
Use of pre-tax contributions or FSA funds for non-qualified or improperly substantiated expenses is prohibited.
Failure to comply with the terms of the Plan or applicable IRS rules may cause amounts to lose their tax-favored status.
If funds are used in a manner inconsistent with the Plan or applicable law, the employer may be required to:
Recharacterize affected amounts as taxable wages; and
Recapture applicable payroll taxes including Social Security (FICA) and Medicare.
Corrections may occur through:
Payroll adjustments during the plan year
Retroactive payroll corrections
Year-end tax reporting adjustments
The employer and Ignite Health may implement reasonable corrective actions necessary to maintain the Plan’s tax-qualified status.
7. Plan Administration and Limitation of Liability
The Company has engaged Ignite Health to provide administrative services for the Plan.
Ignite Health acts solely in an administrative capacity and administers the Plan in accordance with the written Plan document and applicable law.
Neither the employer nor Ignite Health guarantees the tax treatment of any benefit, reimbursement, or election under the Plan.
Employees remain solely responsible for:
Determining eligibility of expenses
Ensuring compliance with IRS requirements
Maintaining appropriate documentation
To the fullest extent permitted by law, Ignite Health and the employer shall not be liable for tax consequences, penalties, or losses arising from employee elections, claims submissions, or failure to comply with Plan rules.
8. Indemnification and Hold Harmless
To the fullest extent permitted by law, the employee agrees to indemnify, defend, and hold harmless the Company and Ignite Health, including their affiliates, officers, directors, employees, agents, and representatives, from and against any claims, liabilities, damages, taxes, penalties, interest, losses, costs, and expenses (including reasonable attorneys’ fees) arising out of or related to:
Submission of inaccurate or ineligible claims
Failure to provide required documentation
Misuse of Plan funds
Misrepresentation of eligibility or expenses
Tax liabilities resulting from the employee’s actions or non-compliance
The employee agrees to reimburse the employer or Ignite Health for any losses, penalties, or administrative costs resulting from such actions.
9. Plan Interpretation and Administrative Authority
To the extent permitted by law and the Plan document, Ignite Health, acting in its administrative capacity, shall have authority to:
Interpret Plan provisions
Determine eligibility for benefits
Evaluate reimbursement claims
Request documentation
Establish reasonable administrative procedures
Administrative determinations made in good faith shall be considered final and binding to the extent permitted by law.
10. Regulatory Compliance and Government Audit Cooperation
The Plan is intended to comply with Internal Revenue Code Section 125 and related federal regulations.
Employees acknowledge that government agencies, including the Internal Revenue Service, may review or audit the Plan.
Employees agree to cooperate with reasonable requests for documentation or information necessary to verify eligibility or claims.
If a regulatory authority determines that certain amounts must be treated as taxable compensation due to non-compliance, the employer or Ignite Health may implement corrective actions including:
Payroll adjustments
Tax reporting corrections
Recovery of improperly reimbursed funds where permitted by law
11. No Tax or Legal Advice
Neither the employer nor Ignite Health provides tax, accounting, or legal advice regarding participation in the Plan.
Employees are encouraged to consult their personal tax advisor regarding the potential tax consequences of participation.
12. Employee Acknowledgment
By electing benefits under the Section 125 Cafeteria Plan, the employee acknowledges that they:
Have received and reviewed this disclosure
Understand the tax implications of participation
Understand the Flexible Spending Account rules and forfeiture provisions
Agree to comply with the Plan terms and applicable IRS regulations
Accept the administrative provisions described above
Participation in the Plan constitutes acceptance of these terms.