[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 2304 Introduced in Senate (IS)]







105th CONGRESS
  2d Session
                                S. 2304

 To amend the Internal Revenue Code of 1986 to allow the carryover of 
  unused nontaxable benefits under cafeteria plans, flexible spending 
          arrangements, and health flexible spending accounts.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 14, 1998

  Mr. Bennett introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to allow the carryover of 
  unused nontaxable benefits under cafeteria plans, flexible spending 
          arrangements, and health flexible spending accounts.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. CARRYOVER OF UNUSED BENEFITS FROM CAFETERIA PLANS, FLEXIBLE 
              SPENDING ARRANGEMENTS, AND HEALTH FLEXIBLE SPENDING 
              ACCOUNTS.

    (a) In General.--Section 125 of the Internal Revenue Code of 1986 
(relating to cafeteria plans) is amended by redesignating subsections 
(h) and (i) as subsections (i) and (j) and by inserting after 
subsection (g) the following new subsection:
    ``(h) Allowance of Carryovers of Unused Benefits to Later Taxable 
Years.--
            ``(1) In general.--For purposes of this title--
                    ``(A) a plan or other arrangement shall not fail to 
                be treated as a cafeteria plan or flexible spending or 
                similar arrangement, and
                    ``(B) no amount shall be required to be included in 
                gross income by reason of this section or any other 
                provision of this chapter,
        solely because under such plan or other arrangement any 
        nontaxable benefit which is unused as of the close of a taxable 
        year may be carried forward to 1 or more succeeding taxable 
        years.
            ``(2) Limitation.--Paragraph (1) shall not apply to amounts 
        carried from a plan to the extent such amounts exceed $500 
        (applied on an annual basis). For purposes of this paragraph, 
        all plans and arrangements maintained by an employer or any 
        related person shall be treated as 1 plan.
            ``(3) Allowance of rollover.--
                    ``(A) In general.--In the case of any unused 
                benefit described in paragraph (1) which consists of 
                amounts in a health flexible spending account or 
                dependent care flexible spending account, the plan or 
                arrangement shall provide that a participant may elect, 
                in lieu of such carryover, to have such amounts 
                distributed to the participant.
                    ``(B) Amounts not included in income.--Any 
                distribution under subparagraph (A) shall not be 
                included in gross income to the extent that such amount 
                is transferred in a trustee-to-trustee transfer, or is 
                contributed within 60 days of the date of the 
                distribution, to--
                            ``(i) an individual retirement plan,
                            ``(ii) a qualified cash or deferred 
                        arrangement described in section 401(k),
                            ``(iii) a plan under which amounts are 
                        contributed by an individual's employer for an 
                        annuity contract described in section 403(b),
                            ``(iv) an eligible deferred compensation 
                        plan described in section 457, or
                            ``(v) a medical savings account (within the 
                        meaning of section 220).
                Any amount rolled over under this subparagraph shall be 
                treated as a rollover contribution for the taxable year 
                from which the unused amount would otherwise be 
                carried.
                    ``(C) Treatment of rollover.--Any amount rolled 
                over under subparagraph (B) shall be treated as an 
                eligible rollover under section 219, 220, 401(k), 
                403(b), or 457, whichever is applicable, and shall not 
                be taken into account in applying any limitation (or 
                participation requirement) on employer or employee 
                contributions under such section or any other provision 
                of this chapter for the taxable year of the rollover.
            ``(4) Cost-of-living adjustment.--In the case of any 
        taxable year beginning in a calendar year after 1998, the $500 
        amount under paragraph (2) shall be adjusted at the same time 
        and in the same manner as under section 415(d)(2), except that 
        the base period taken into account shall be the calendar 
        quarter beginning October 1, 1997, and any increase which is 
        not a multiple of $50 shall be rounded to the next lowest 
        multiple of $50.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.
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