II 111th CONGRESS 1st Session S. 2883 IN THE SENATE OF THE UNITED STATES December 15, 2009 Mr. Johanns 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 provide for the distribution of remaining balances in flexible spending arrangements upon termination from employment.

1.

Distribution of remaining balances in flexible spending arrangements upon termination from employment

(a)

In general

Section 125 of the Internal Revenue Code of 1986 is amended by redesignating subsections (i) and (j) as subsections (j) and (k), respectively, and by inserting after subsection (h) the following new subsection: (i)

Distribution of remaining balances in flexible spending arrangements upon termination from employment

(1)

In general

For purposes of this title, a plan or other arrangement shall not fail to be treated as a health flexible spending arrangement or a dependent care flexible spending arrangement solely because under the plan or arrangement a participant is permitted access to any unused balance in the participant’s accounts under such plan or arrangement in the manner provided under paragraph (2). (2)

Distribution upon termination

(A)

In general

A plan or arrangement shall permit a participant (or any designated heir of the participant) to receive a cash payment equal to the aggregate unused account balances in the plan or arrangement as of the date the individual is separated (including by death or disability) from employment with the employer maintaining the plan or arrangement. (B)

Inclusion in income

Any payment under subparagraph (A) shall be includible in gross income for the taxable year in which such payment is distributed to the employee. (3)

Terms relating to flexible spending arrangements

For purposes of this section— (A)

Flexible spending arrangements

A flexible spending arrangement is a benefit program which provides employees with coverage under which specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions). (B)

Health and dependent care arrangements

The terms health flexible spending arrangement and dependent care flexible spending arrangement means any flexible spending arrangement (or portion thereof) which provides payments for expenses incurred for medical care (as defined in section 213(d)) or dependent care (within the meaning of section 129), respectively. . (b)

Conforming amendments

(1)The heading for section 125 of the Internal Revenue Code of 1986 is amended by inserting and flexible spending arrangements after plans. (2)The item relating to section 125 in the table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting and flexible spending arrangements after plans. (c)

Effective date

The amendments made by this section shall take effect on the date of the enactment of this Act.