I 108th CONGRESS 2d Session H. R. 4007 IN THE HOUSE OF REPRESENTATIVES March 18, 2004 Mr. Royce (for himself, Mr. Dreier, Mr. Paul, and Mr. Rohrabacher) 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 amounts in a health flexible spending arrangement that are unused during a plan year to be carried over to subsequent plan years or deposited into certain health or retirement plans.

1.

Disposition of unused health benefits in 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 subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: (h)

Contributions of certain unused health benefits

(1)

In general

For purposes of this title, a plan or other arrangement shall not fail to be treated as a cafeteria plan solely because qualified benefits under such plan include a health flexible spending arrangement under which not more than $500 of unused health benefits may be— (A)carried forward to the succeeding plan year of such health flexible spending arrangement, (B)to the extent permitted by sections 223, contributed on behalf of the employee to a health savings account (as defined in section 223(d)), maintained for the benefit of such employee, or (C)contributed to a qualified retirement plan (as defined in section 4974(c)), or an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A). (2)

Special rules for treatment of contributions to health and retirement plans

For purposes of this title, contributions under subparagraph (B) or (C) of paragraph (1)— (A)shall be treated as a contribution made by the employee (and includible in the gross income of such employee) in the case of a contribution to a health savings account, (B)shall be treated as elective deferrals (as defined in section 402(g)(3)) in the case of contributions to a qualified cash or deferred arrangement (as defined in section 401(k)) or to an annuity contract described in section 403(b), (C)shall be treated as employer contributions to which the employee has a nonforfeitable right in the case of a plan (other than a plan described in subparagraph (A)) which is described in section 401(a) which includes a trust exempt from tax under section 501(a), (D)shall be treated as deferred compensation in the case of contributions to an eligible deferred compensation plan (as defined in section 457(b)), and (E)shall be treated in the manner designated for purposes of section 408 or 408A in the case of contributions to an individual retirement plan. (3)

Health flexible spending arrangement

For purposes of this subsection, the term health flexible spending arrangement means a flexible spending arrangement (as defined in section 106(c)) that is a qualified benefit and only permits reimbursement for expenses for medical care (as defined in section 213(d)(1) (without regard to subparagraphs (C) and (D) thereof). (4)

Unused health benefits

For purposes of this subsection, with respect to an employee, the term unused health benefits means the excess of— (A)the maximum amount of reimbursement allowable to the employee during a plan year under a health flexible spending arrangement, taking into account any election by the employee, over (B)the actual amount of reimbursement during such year under such arrangement.. (b)

Effective date

The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2003.