VEChannel Event Profile

Breaking Cafeteria Plan Development New "UseItOrLoseIt" Rules!

On Tuesday, May 17, 2005, the U.S. Treasury Department and the Internal Revenue Service released Notice 200542 modifying the "useitorloseit" rules applicable to Cafeteria Plans. The Notice will allow plans to provide up to a twoandahalf month "grace period" (not to be confused with the plans "runout" period) during which claims incurred during the new plan year could be reimbursed with money left over from the previous plan year. Although the useitor loseit rule has not been abolished, this modification does give participants a chance to access unused funds from the previous year, for up to at least an additional 2 ½ months (effectively creating a 14 ½ month plan year). This much is clear from the Notice: This is an optional enhancement for plan sponsors; Plan Sponsors can elect a grace period of less than 2 ½ months; Plans must be amended to allow for this, and they can be amended anytime prior to the end of the plan year for which the grace period will be effective; and Plans can still have a runout period. But, its not necessarily as straight forward as it appears. There are still many intriguing issues and considerations that arise in evaluating this plan change as it relates to plan administration, employee communication, the annual dependent care maximum reimbursement, and coordination with HSAs and COBRA. For example . . . What type of language should be included in the plan document and SPD (and, is this a material modification requiring a Summary of Material Modifications)? How will the runout period coordinate with the grace period? How does the grace period integrate with the COBRA rules ( e.g. , are continuees always, never, or sometimes entitled to the grace period)? If an FSA participant elects a high deductible health plan for a new plan year, will the grace period impact HSA eligibility? Is the answer different if the participant does not have a remaining account balance at the end of the plan year or if the participant does not submit any expenses during the grace period? Are dependent care benefits included in this Notice, and if so, what are the implications for the statutory maximum annual reimbursement amount? How does this affect other reimbursement issues such as the use of Debit Cards and the uniform coverage rule? How will plans need to change their employee communications, and their administrative claims and reimbursement procedures? Are there reasons why a plan sponsor would not want to allow this new grace period? In addition to all of the considerations surrounding the new grace period rules, this webcast will also review other, important FSA reimbursement requirements, including the four part test for the eligibility of expenses, overthecounter drugs, weight loss programs, stockpiling, debit cards, and many more. You wont want to miss this opportunity to learn about this new cafeteria plan development and to refresh your memory regarding other critical FSA expense reimbursement rules. Register today for this valuable presentation!

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