The IRS has modified some of the rules for Section 125 Cafeteria Plans. One of the biggest modifications will be to the “use it or lose it” rules for Flexible Spending Accounts (FSAs). Employers may amend their Plan to allow up to $500 of unused funds remaining at the end of the plan year to be paid or reimbursed to plan participants for qualified medical expenses incurred in the following plan year. In order for the funds to be carried over, the Plan must also amend the rules regarding the Plan’s grace period. The carryover does not affect the maximum amount of salary deferral.
Employers are encouraged to contact their Health Insurance Brokers for assistance in making these changes.
Further details and examples are given in Internal Revenue Notice 2013-71.