PayFlex Systems USA, Inc. is the administrator for the UT FLEX flexible spending accounts.

Authorized by the IRS, the UT FLEX plan lets you set aside money from your pay before taxes are withheld. The UT FLEX flexible spending accounts are a way for you to pay for certain out-of-pocket health care and work-related day care expenses while receiving a tax advantage. As you incur medical care expenses and/or dependent day care expenses throughout the plan year, you submit a claim, and you will be reimbursed with tax-free dollars from your UT FLEX account. This reduces the amount you pay in taxes, and increases your spendable income. If you elect the Flex Convenience® Card, you will use your card at the time of service and the payment will be automatically deducted from your UT FLEX account.

Your UT FLEX elections must be renewed each Annual Enrollment. Your election amounts are not continued from the previous year.

The UT FLEX plan has two types of accounts:

• The Medical Expense Reimbursement Account; and
• The Day Care Reimbursement Account.

How the Plan Works

• To participate, you decide how much you want deducted from your paycheck and transferred to your UT FLEX account. (See www.payflex/utflex for a “Savings Calculator.”) Plan care fully as any amount left in your account after the claims run-out period will be forfeited.
• During Annual Enrollment, you enroll in one or both UT FLEX accounts through the UT Touch enrollment system.
• When you have a medical expense or day care expense, send a claim form with your receipts to PayFlex. (See Flex Convenience® Card information below for medical expenses.)
• You decide if you want the reimbursement check mailed to your home or directly deposited to your bank account. If you choose “Direct Deposit,” be sure to fill out and submit a special PayFlex Direct Deposit authorization form with a “voided” check.

The New UT FLEX Grace Period

Based on changes made recently to the Internal Revenue Code, UT FLEX Medical Expense account participants will have an additional 2-1/2 months each year to incur eligible expenses. This means that instead of forfeiting any UT FLEX contributions that are not spent by August 31, you may be reimbursed for eligible health care expenses incurred through November 15. Read Questions and Answers about the new grace period here.

The Medical Expense Reimbursement Account offers two conveniently accessible features for your health care needs :

• Certain over-the-counter items are eligible for reimbursement;
• Flex Convenience® Card is available to use as a "debit card."

All claims must be submitted by November 30

If you enroll in the Medical Expense Reimbursement Account, you can be reimbursed for eligible out-of-pocket expenses you incur during the plan year (September 1 through August 31) and grace period (September 1 through November 15), up to the amount you have elected and while you are covered by the plan.

Eligible Medical Expenses

Eligible medical expenses are amounts paid for the diagnosis, cure, mitigation or treatment of a disease, or for treatments affecting any part or function of the body. The expense must be primarily to alleviate a physical or mental illness. The following are examples of eligible expenses:

• Deductibles, co-pays, coinsurance
• Prescription drugs, allergy shots, insulin & syringes, annual physicals, contraceptives
• Chiropractor treatments, psychiatric/psychologist fees
• Smoking cessation programs
• Wheelchair/crutches or other durable medical equipment
• Dental exams, x-rays, fillings, crowns, bridges, dentures, orthodontia
• Eye exams, prescription eyeglasses and prescription sunglasses, LASIK surgery
• Contact lenses and cleaning solutions
• Hearing aids and batteries
• Eligible Over-the-Counter Items
• You can be reimbursed for certain over-the-counter items, such as:
• Antacids
• First-aid antibiotic ointments and creams
• Anti-fungal ointments and creams
• Cold remedies, including nasal sprays and cough syrups
• Eye drops
• Hemorrhoid ointments and creams
• Pain relievers, such as aspirin, and acetaminophen
• Stop-smoking gums and patches

FLEX Convenience® Card
If you enroll in the Medical Expense Reimbursement account, you have the option to use the FLEX Convenience® card for qualified medical expenses. This card works like a debit card.

The advantages to the FLEX Convenience® card are:

• Improved cash flow - You don't have to pay money when you use the card at participating merchants and providers.
• It's easy to use - You don't have to complete a claim form. PayFlex will request receipts to verify that some expenses are eligible under the plan; therefore, you must save your receipts. (IRS guidelines require appropriate documentation of qualifying expenses.)

The annual fee for this card is $9. The fee is deducted at the beginning of the plan year from your annual elected amount.

The UT Flex Convenience® Card will not be available for transactions due to quarterly maintence from 2 a.m. to 6 a.m. ET on the following dates:

Monday, March 20, 2006
Monday, May 22, 2006
Monday, August 21, 2006
Monday, October 23, 2006

Cardholder transactions denied during this window should be tried again at the conclusion of the scheduled maintenance.

Important: You can use this card only for the UT FLEX Medical Expense Reimbursement Account. It cannot be used for the Day Care Reimbursement Account. For more detailed information download the FLEX Convenience® Card brochure (PDF) or visit www.payflex.com/utflex.

All medical expenses incurred during the 2004-2005 plan year that are filed for reimbursement after August 31, 2005 must be submitted with a PayFlex claim form. All medical claim expenses incurred during the grace period (September 1 - November 15) will also require a PayFlex claim form to be submitted.

 If you use your FLEX Convenience® Card during the grace period your claim will be deducted from your 2005-2006 election.

DAY CARE REIMBURSEMENT ACCOUNT
You can be reimbursed for qualified dependent care expenses that meet the requirements described below.

Reimbursements can be made up to the amount actually contributed to your account, less prior reimbursements.

Eligible Dependent Day Care Expenses

• Work-related expenses incurred so that you and, if married, your spouse can work;
• Custodial care for qualified tax dependents;
• Before/after school care;
• Preschool/nursery school for pre-kindergarten;
• Day care center expenses for custodial care
• Au pair or nanny dependent care expenses; adult day care expenses
• The annual expense reimbursement may not exceed the lesser of:
• your earned income,
• if married, your spouse's earned income; or,
• $5,000 ($2,500 if married, filing separate income tax returns).

Ineligible Dependent Care Expenses

• Educational/tuition - kindergarten, first grade or higher
• Registration/reservation/holding fees
• Activity fees or fees for supplies or materials/field trip expenses
• Overnight camp
• Transportation expenses, food, clothing, entertainment expenses
• Payment of services not yet provided (advance payments)

The amount which you may consider in calculating the tax credit under the Federal Tax Credit is reduced, dollar-for-dollar, by any amount that you place into the Day Care account. The tax credit limits are $3,000 for one qualifying dependent, and $6,000 for two or more qualifying dependents. You should carefully review the benefits of the Federal Tax Credit with the benefits of the Day Care account and seek advice from your tax advisor before making your final decision.

OTHER IMPORTANT UT FLEX PLAN FEATURES
"Use it or lose it." The Internal Revenue Code sets the rules and does not permit the carryover of non-reimbursed funds. In other words, the UT FLEX plan is a "use it or lose it" plan. Any amounts you do not use throughout the plan year and during the grace period for health related expenses will be forfeited, so it is very important to plan carefully. Review your prior year's expenses to estimate your medical and day care expenses for the upcoming plan year. Be conservative and plan only for predictable expenses.

Your UT FLEX elections must be renewed each Annual Enrollment. Your election amounts are not continued from the previous year.

Effective September 1, 2005, PayFlex will discontinue sending quarterly statements to plan participants. However, if more than $10 remains in your UT FLEX account(s), you will receive a notification and reminder during July, 2006.

UT FLEX
(PayFlex Systems USA, Inc.)
www.payflex.com/utflex
Phone: (866) 887-3539 (UTS-FLEX)
Fax: (877-230-4283)