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| Posted on: Tuesday, January 6, 2009 |
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The HEART Act is an optional benefit employers may wish to consider incorporating into their Healthcare Flexible Spending Account (FSA) plans. The Act amends Code section 125 and allows, but does not require, employers who offer a Healthcare FSA to permit "qualified reservist distributions" (QRDs).
What is a QRD?
Simply put, it is cashing out a Healthcare FSA account balance (see Amount of Distribution options below for details). Employees who are ordered or called to active duty as a reservist for a minimum period of 180 days may receive a QRD for all or part of the employee’s unused health FSA balance. If the order or call to active duty is less than 180 days, the employee is not eligible for a QRD. NOTE: If the orders are later extended, the employee would then be eligible for a QRD so long as the total call to duty is 180 days or longer.
Plan Sponsor Actions:
Employers must decide whether or not they want to allow this optional benefit. If they do, they must amend their Healthcare FSA plan document to permit the distributions and define the terms. If an employer is undecided whether or not they want to offer this optional benefit now, IRS Notice 2008-82 permits the employer to amend their plan document retroactively, provided all of requirements of the HEART Act are met and plans are amended by no later than December 31, 2009
Key Points about the Act:
• Amount of Distribution: There are three options employers can
choose in determining the amount available under a QRD. They are:
1. the amount elected for the health FSA for the plan year minus the
health FSA reimbursements received as of the date of the request; or
2. the amount contributed to the health FSA as of the date of the request
for distribution minus health FSA reimbursements received as of the
date of request (recommended option); or
3. some other amount (not exceeding the entire amount elected for the
health FSA for the plan year minus reimbursements).
• Determine Deadline for Requesting Distribution: An employee
must request a QRD on or after the date of the order or call to active duty,
and before the last day of the plan year (or grace period if a group has
adopted one) during the plan year in which the order or call to active duty
occurred.
• Deadline for Making Distribution: Employers must make the QRD
to the employee not later than sixty days after the distribution request is
made. Employers must receive a copy of the order or call to active duty
before any distribution may be made.
• Tax Treatment: QRDs must be included in the gross income and
wages of the employee and is subject to employment taxes. Any
contributions that are made with after-tax contributions would not be
considered as additional wages.
Should you have any additional employee benefit questions or would like to discuss this material in detail, please don’t hesitate to call the Denman Team. |
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