Tuesday, October 26, 2010

Changes to FSA Plans

It is that time of year again when companies hold their annual open enrollment. This is when employees have the opportunity to change medical or dental plans, and to opt into making contributions to a flexible spending account (FSA). In general, a flexible spending account allows one to deposit pre-tax dollars into the account to pay for medical expenses, or to pay for dependent care. (Note that these are two different types of accounts.) The ability to use pre-tax money to pay for expenses is a good benefit that can save you money.

For the coming year (2011), there is an important change to FSA plans. Specifically, the rules have changed for the purchase of over-the-counter (OTC) medicines and drugs (such as OTC allergy medicines, pain relievers, antacids, cough medicine, etc.). This change is due to the federal health care reform law, the Patient Protection and Affordable Care Act of 2010 (PPACA). (This was a part of President Obama's health care reform plan.)

Previously, all of these OTC purchases were covered by flex spending accounts. However, I've been informed that starting in 2011 these OTC drugs and medicines will not be reimbursed through an FSA unless they are prescribed by a medical practitioner to treat a specific medical condition. So, the bottom line is if you plan to purchase these OTC items through a flexible spending plan, you'd better have a prescription first.

One other thing to keep in mind when contributing to an FSA is that most flex spending accounts operate on a "use it or lose it" basis. This means that any balance you have in the account at the end of the calendar year is forfeited to your employer. This is something that I would rather not do, since I never want to leave any money on the table.

In the current economy, I also want to warn my readers of one more potential hazard with FSAs. Having been downsized twice in the last decade, I can tell you that the "use it or lose it" provision also applies if you are terminated without cause (i.e., laid off). Any money that you have left in your FSA plan when you are terminated will be kept by your former employer. This may seem totally unfair, but that has been my real life experience.

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Friday, October 15, 2010

Update on Verizon Frontier Spin Off

A few months ago, I wrote a post about how Verizon Communications (NYSE: VZ) shareholders received shares in Frontier Communications (NYSE: FTR) as the result of a spinoff from Verizon. My post described how to calculate the cost basis of an investment after a spin-off. As I mentioned in my post, I had a few question about the spin off and contacted Verizon investor relations about these questions.

Verizon's investor relations website provided a document that explains most of the mechanics of the spin off. One of the items that I had a question about is how that document arrived at the "opening trade" price of Verizon (VZ) on July 2, 2010 (date of the spin off). They listed the value as $27.05 per share of Verizon. I checked a couple of data sources (i.e., Google and Yahoo Finance) that list the opening price as $27.17 on July 2. However, I also subscribe to a third-party data service that lists the opening price as $27.05, which was the same value used in Verizon's calculations. So, I asked Verizon to explain the reason for this discrepancy.

Verizon's response was that the $27.05 price is the "NYSE open" as compared to the "consolidated open." Well, I'm still not 100% clear on this issue. But I gather that the $27.17 price is the "consolidated open" price. Can anybody shed additional light on this topic?

One of the commentators on my original post asked about previous spinoffs from Verizon. I responded that my post only covered the most recent spin-off of Frontier from Verizon. As you may know, Verizon has had a long history of spin-offs and mergers: the original divestiture of AT&T to form Bell Atlantic, the merger with GTE, the spin-offs of Idearc, FairPoint, and finally Frontier. And, I didn't even mention NYNEX, Contel, and MCI... All this data gives me a headache. So for more information about previous mergers and spin-offs involving Verizon Communications you can look here:


Lastly, I mentioned that a small portion of the Frontier cost basis may be paid out as "cash in lieu" (CIL) of fractional shares. For me this worked out to only $0.06 (6 cents) of cash-in-lieu. Theoretically this amount is considered income, and from the IRS standpoint tax needs to be paid on it. This transaction should be accounted for in the cost basis of the Frontier shares: The tax basis for Frontier is decreased by the amount of CIL received. I personally use Microsoft Money, financial management software, to track my investments. In the program, this transaction is allocated as a "Return of Capital"  for Frontier of $0.06. I am not certain how to enter the equivalent transaction in Quicken, but I would guess that a similar entry can be made.

So, is everything as clear as mud now?

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Friday, October 1, 2010

Guest Post: Reduce Your Debt By Settlement

If you negotiate with your creditor then you can reduce a partial amount of the outstanding balance. Settlement companies are at the service of the debtors to reduce debts and make the payment plan affordable. At least 40 to 60 percent of the total debt is reduced.

Before you plan to file bankruptcy find out whether you can settle your debt or not. As filing bankruptcy not only hampers the credit score but also ruin your financial career. Therefore it would be advisable to try other alternative other than bankruptcy in order to reduce your debt. As the impact of filing bankruptcy remains on your credit report for 10 years, within these years you might face difficulty to acquire loan.

It would take 1 to 2 years for the entire process of debt settlement and for you to get out of the trap of debt. On your behalf the debt settlement companies would contact the creditors in order to negotiate your debt. After you are being represented by them the creditors usually do not contact you. As the creditors can see a fine ray of hope to get back their money after debt settlement so the creditor harassment is at a halt.

Debt settlement works:
You have to sign a legal paper with the debt settlement company that is known as the "Limited Power of Attorney". A contact needs to be signed by you and make a monthly payment that would be deposited into the "Settlement Account". This money would be distributed among the creditors by the settlement company. Once the payment has been made the clients can unburden themselves from the torment of debt. In this way you can get rid of debt without ruining your credit history.

Advantages and disadvantages of this program:
What are the advantages of debt settlement program?
1.As a part of your debt is wiped out after settling it so debt settlement is considered to be an effective process. In this way you can fix your monthly budget and the repayment plan would also become convenient for your pocket.
2. If you enroll with a debt settlement program then the interest rates along with the penalty charges on the outstanding balance would be negotiated by the debt settlement company. They make monthly payments affordable for the debtors.
3. After the enrollment with the debt settlement program the over limit fee would be eliminated.
4. Debt Settlement Company is a preferable option to eradicate the burden of creditor harassment and threatening phone calls. In order to achieve a debt free life you need to enroll with a debt settlement program.

What are the disadvantages of the debt settlement program?
1. Your credit report would be hampered if you enroll with a debt relief program. Before you enroll with this program you have to be a defaulter in order to reduce and get rid of debt. If you fail to repay on time in case of credit card debt then that might have a negative effect on your credit score.
2. As the balance is settled by negotiation so it is considered under taxable income.
3. You need to follow a disciplined payment plan if you miss any one payment then the settlement plan would not work.
You can boost your credit score once you have paid your account in full. You can secure your financial future by unshackling yourself from the torture of debt.

Author bio:
This is a guest post by Kevin Craig who is a financial writer. He has helped lots of debt burdened people with free counseling and advices on many finance related topics. If you are interested in writing a guest post, please contact PF Stock at the Email address listed in the sidebar.

Disclaimer: The information provided here is not meant as tax or debt settlement advice. I encourages readers to consult with an attorney or financial adviser if they have specific questions about debt settlement.