|
On May 19, 2005, the IRS issued Notice 2005-42 modifying the long-standing use-it-or-lose-it rule that applies to benefits or contributions under a cafeteria or flexible benefits plan. The notice allows a plan to implement a 2 1/2 month grace period following the end of the plan year during which any unused benefits or contributions remaining at the end of the plan year may be paid or reimbursed to participants for eligible expenses incurred during the grace period. This differs from the traditional grace period (or run-out period) in which participants have a period of time in which to submit claims for expenses that were incurred during the plan year. In other words, for plans that choose to implement this new grace period, participants will essentially have 14 1/2 months in which to use up their contributions before they are forfeited.
This is a welcome development that should help to reduce the amount of forfeitures from participants' medical or dependent care flexible spending accounts. On the other hand, employers that adopt such a grace period will be faced with new administrative and recordkeeping challenges. Employers wishing to implement the new grace period may amend their plans at any time prior to the end of the plan year. In other words, employers with calendar year plan years must amend their plans prior to December 31, 2005, if they wish to offer this benefit to their employees for the current plan year.
Please contact us if you wish to discuss this further or if we can assist you with a plan amendment.
- PLAN CONSULTING - RETIREMENT PLANS - HEALTH & WELFARE PLANS -
- ONGOING COMPLIANCE - SPECIAL SITUATIONS - CURRENT DEVELOPMENTS -
- ABOUT US - CONTACT US - HOME -
