New Proposed Cafeteria Plan Regulations Issued
On August 3, the U.S. Treasury Department and the IRS issued new proposed regulations to replace prior guidance issued at various times over the past 20 years. The new proposed regulations contain mostly favorable changes to the rules governing cafeteria plans, health Flexible Spending Arrangements (health FSAs), Dependent Care Assistance Programs (DCAPs), and other benefits.
Employers administering plans in full compliance with prior formal and informal guidance issued throughout the years should not be worried as those plans will not experience any significant change with the new regulations. Although there are a few important additions, there are no major surprises that affect the operation of flex plans.
These new regulations will be effective for plan years beginning January 1, 2009, but employers may rely on the regulations immediately. Some highlights of the new rules include:
- The incorporation of previously-issued guidance relating to debit cards and grace periods for using health FSA funds after the end of a plan year.
- Updated imputed income rules for group term life coverage to include only the Table 1 cost of the coverage in excess of $50,000.
- Clearer, instructive guidance on how to conduct non-discrimination testing of cafeteria plans. The regulations also include a new “Safe Harbor” for premium-only plans that meet certain qualifications regarding premium contributions to highly-compensated participants.
- Clarified election rules, including a 30-day election window for new hires.
Hill, Chesson & Woody will continue to monitor these new regulations as they move through the adoption process and will provide additional guidance in the near future. If you have any questions regarding this or any other compliance issue, please contact Rob Krieg, Director of Compliance Services, at 919-403-1986.
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August 10, 2007
Hill, Chesson & Woody Employee Benefit Services
194 Finley Golf Course Rd, Suite 200,
Chapel Hill, NC 27517
Phone: 919.403.1986
Fax: 919.913.0237
www.hcwbenefits.com