[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3034 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                H. R. 3034

  To amend the Internal Revenue Code of 1986 to allow unused benefits 
 from cafeteria plans to be carried over into later years and used for 
 health care reimbursement rollover accounts and certain other plans, 
                       arrangements, or accounts.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 6, 1999

 Mr. Royce (for himself and Mr. Duncan) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to allow unused benefits 
 from cafeteria plans to be carried over into later years and used for 
 health care reimbursement rollover accounts and certain other plans, 
                       arrangements, or 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 AND FLEXIBLE SPENDING 
              ARRANGEMENTS.

    (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), respectively, 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 $3,000 
        (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.--Each flexible spending or 
                similar arrangement which permits a carryover under 
                paragraph (1) of an amount of unused benefit shall 
                provide that each participant may elect, in lieu of a 
                carryover of such amount, to have such amount 
                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,
                            ``(v) a medical savings account (within the 
                        meaning of section 220),
                            ``(vi) an education individual retirement 
                        account (within the meaning of section 530(b)), 
                        or
                            ``(vii) a health care reimbursement 
                        rollover account described in section 530A.
                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), 457, 530, or 530A, whichever is applicable, and 
                shall not be taken into account in applying any 
                limitation (or participation requirement) on 
                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 1999, the 
        $3,000 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, 1999, and any increase which is 
        not a multiple of $50 shall be rounded to the next lowest 
        multiple of $50.''
    (b) Health Care Reimbursement Rollover Account.--Subchapter F of 
chapter 1 of subtitle A of the Internal Revenue Code of 1986 is amended 
by adding at the end the following:

         ``PART IX--HEALTH CARE REIMBURSEMENT ROLLOVER ACCOUNTS

                              ``Sec. 530A. Health care reimbursement 
                                        rollover accounts.

``SEC. 530A. HEALTH CARE REIMBURSEMENT ROLLOVER ACCOUNTS.

    ``(a) General Rule.--A health care reimbursement rollover account 
shall be exempt from taxation under this subtitle unless such account 
has ceased to be a health care reimbursement rollover account. 
Notwithstanding the preceding sentence, any such account is subject to 
the taxes imposed by section 511 (relating to imposition of tax on 
unrelated business income of charitable, etc. organizations).
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Health care reimbursement rollover account.--The term 
        `health care reimbursement rollover account' means a trust 
        created or organized in the United States exclusively for the 
        purpose of paying the qualified medical expenses of the account 
        holder, but only if the written governing instrument creating 
        the trust meets the following requirements:
                    ``(A) No contribution will be accepted unless it is 
                a rollover contribution allowed under section 
                125(h)(3).
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person (including the employer of the 
                account holder) who demonstrates to the satisfaction of 
                the Secretary that the manner in which such person will 
                administer the trust will be consistent with the 
                requirements of this section.
                    ``(C) The assets of the trust will be invested only 
                in appropriate guaranteed principle and interest 
                investments which provide 100 percent liquidity.
                    ``(D) Contributions to the trust will not be 
                invested until the second year after the year the 
                contributions are made.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder for medical care (as 
                defined in section 213(d)) for such individual, the 
                spouse of such individual, and any dependent (as 
                defined in section 152) of such individual, but only to 
                the extent such amounts are not compensated for by 
                insurance or otherwise.
                    ``(B) Health insurance may not be purchased from 
                account.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to any payment for coverage under a 
                        group health plan of an employer of the account 
                        holder or the spouse of the account holder.
                            ``(ii) Exceptions.--Clause (i) shall not 
                        apply to any expense for coverage under--
                                    ``(I) a health plan during any 
                                period of continuation coverage 
                                required under any Federal law,
                                    ``(II) a qualified long-term care 
                                insurance contract (as defined in 
                                section 7702B(b)), or
                                    ``(III) a medicare supplemental 
                                policy under section 1882 of the Social 
                                Security Act.
            ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the health care reimbursement 
        rollover account was established.
            ``(4) Certain rules to apply.--Rules similar to rules under 
        section 408(h) (relating to custodial accounts) shall apply for 
        purposes of this section.
    ``(c) Tax Treatment Of Account Terminations.--Rules similar to the 
rules of paragraphs (2) and (4) of section 408(e) shall apply to health 
care reimbursement rollover accounts and any amount treated as 
distributed under such rules shall be treated as not used to pay 
qualified medical expenses.
    ``(d) Tax Treatment Of Distributions.--
            ``(1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a health care reimbursement 
rollover account which is used exclusively to pay qualified medical 
expenses of any account holder shall not be includible in gross income.
            ``(2) Inclusion of amounts not used for qualified medical 
        expenses.--Any amount paid or distributed out of a health care 
        reimbursement rollover account which is not used exclusively to 
        pay the qualified medical expenses of the account holder shall 
        be included in the gross income of such holder.
            ``(3) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213 or 162(l), any payment or distribution out of a 
        health care reimbursement rollover account for qualified 
        medical expenses shall not be treated as an expense paid for 
        medical care.
            ``(4) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a health care 
        reimbursement rollover account to an individual's spouse or 
        former spouse under a divorce or separation instrument 
        described in subparagraph (A) of section 71(b)(2) shall not be 
        considered a taxable transfer made by such individual 
        notwithstanding any other provision of this subtitle, and such 
        interest shall, after such transfer, be treated as a health 
        care reimbursement rollover account with respect to which such 
        spouse is the account holder.
            ``(5) Treatment after death of account holder.--
                    ``(A) Exclusion from estate tax.--The value of the 
                gross estate under chapter 11 shall be determined 
                without regard to the value of health care 
                reimbursement rollover account.
                    ``(B) Transfer of account to designated 
                beneficiary.--If any individual acquires the account 
                holder's interest in a health care reimbursement 
                rollover account by reason of being the designated 
                beneficiary of such account at the death of such 
                account holder, such account shall be treated as if the 
                beneficiary were the account holder.
                    ``(C) Special rule.--If any person other than an 
                individual acquires the account holder's interest in a 
                health care reimbursement rollover account by reason of 
                being the designated beneficiary of such account at the 
                death of such account holder, such account shall cease 
                to be a health care reimbursement rollover account as 
                of the date of death.
    ``(e) Reports.--The Secretary may require the trustee of a health 
care reimbursement rollover account to make such reports regarding such 
account to the Secretary and to the account holder with respect to 
contributions, distributions, and such other matters as the Secretary 
determines appropriate. The reports required by this subsection shall 
be filed at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required by the 
Secretary.''.
    (c) Clerical Amendment.--The table of parts for subchapter F of 
chapter 1 of such Code is amended by adding at the end the following 
new item:

                              ``Part IX. Health care reimbursement 
                                        rollover accounts.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.
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