IRS Provides Guidance on Reservist FSA
Distributions
September 30, 2008 (PLANSPONSOR.com) - The Internal
Revenue Service has issued Notice 2008-82 providing guidance
on qualified reservist distributions (QRDs) from health
flexible spending accounts (FSAs) and including a transition
rule allowing plans to be retroactively amended for QRDs made
before January 1, 2010.
The notice explains that Section 114 of the Heroes
Earnings Assistance and Relief Tax Act of 2008 (HEART
Act), enacted June 17, 2008, amended section 125 of the
Internal Revenue Code to provide a special rule allowing
distributions of unused amounts in a health FSAs to
reservists ordered or called to active duty (See
Rules/Regs: Heroic Measures
). QRDs are an exception to the rule that a health FSA
may not make distributions other than reimbursements of
substantiated medical expenses.
In general, the IRS said, a QRD is a distribution
to an individual of all or a portion of the balance in
the employee's health FSA if:
(1) the individual is a member of a reserve
component ordered or called to active duty for a period
of 180 days or more or for an indefinite period,
and
(2) the request for distribution is made during the
period beginning with the order or call to active duty
and ending on the last day of the plan year (or grace
period, if applicable, under Prop. Treas. Reg. §
1.125-1(e)) that includes the date of the order or call
to active duty.
A cafeteria plan is not required to provide for a
QRD; the decision is opted by the employer. A QRD may not
be made before the cafeteria plan is amended to provide
for a QRD from a health FSA; however, the notice provides
that a plan may be amended retroactively to permit QRDs
requested on or before December 31, 2009, provided that
the QRD satisfies all requirements.
The retroactive amendment must be made by December
31, 2009, and be effective retroactively to the date of
the first QRD paid under the plan, but not prior to June
18, 2008. This transition rule does not extend the period
during which an employee may request a QRD.
Notice 2008-82 is
here
.
Rebecca Moore
editors@plansponsor.com