The Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 allows employers to amend their FSA plans to permit reservists called up for at least six months of active duty to take FSA balances as a taxable cash distribution (See Activating Reservist Aid Bill Enroute to the White House ). The law goes into effect immediately.
The HEART Act also retroactively and permanently extends an expired law to allowing reservists called up for at least six months of active duty to withdraw funds from their 401(k) or other defined contribution plans without paying the 10% penalty tax that applies on most distributions taken before age 59Â½, Business Insurance reports.
Employers providing differential pay to employees called up for active military service must now recognize that compensation in calculating employees’ pension benefits under the new law. Differential pay represents the difference between what the employee earned before being called up and the military pay the employee receives while on active duty, Business Insurance explained.
The bill included provisions under the Honoring Existing Retirement Obligations for Every Servicemember (HEROES) Act which protects survivor benefits of military members killed during active duty (See Bush Signs Bill Protecting Survivor Benefits of Military Members ).
Mental Health Parity
Aside from the military provisions, the newly passed legislation retroactively renews through December 31, 2008, a 1996 federal law that bars group health care plans from providing lower annual and lifetime dollar coverage limits on mental health care services than for other medical services. Lawmakers agreed on the mental health parity rules extension while they iron out differences in House and Senate bills that would, among other things, expand the rules to require group health plans to provide the same coverage for mental disorders as they do for other medical conditions.