Deadline to Amend Medical Flexible Spending Account Plans Fast Approaching

Enacted in 2010, the Patient Protection and Affordable Care Act included a rule prohibiting a health flexible spending account (FSA) or health reimbursement arrangement (HRA) from reimbursing over-the-counter drug expenses unless the drug is prescribed by a doctor or is insulin. This new rule applied to expenses incurred after December 31, 2010 (or with respect to debit card purchases, after January 15, 2011), regardless of whether the plan year for the FSA or HRA is a fiscal or calendar year and regardless of any applicable grace period in effect for the FSA.

Cafeteria plans, including FSAs and HRAs, may need to be amended to conform to this new rule. Although proposed cafeteria plan regulations prohibit retroactive amendments, the Internal Revenue Service has given plan sponsors until June 30, 2011 to retroactively amend their cafeteria plan documents to reflect the new rule.

If you have not yet amended your cafeteria plan, health FSA, or HRA to reflect the new rule, you should do so no later than the June 30, 2011 deadline. For most cafeteria plans, a simple one-sentence amendment is all that is needed.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or:

Leigh C. Riley
Milwaukee, Wisconsin
414.297.5846
lriley@foley.com

Internal Revenue Service regulations generally require that, for purposes of avoiding United States federal tax penalties, a taxpayer may only rely on formal written opinions meeting specific requirements described in those regulations. This newsletter does not meet those requirements. To the extent this newsletter contains written information relating to United States federal tax issues, the written information is not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal tax penalties, and it was not written to support the promotion or marketing of any transaction or matter discussed in the newsletter.