June 30 Deadline Looming to Amend Health FSA Cafeteria Plans

By Callan Carter

The health care reform laws enacted a provision that restricts health care flexible spending arrangements (Health FSAs) and health reimbursement arrangements (HRAs) from reimbursing amounts expended by participants and their dependents in various ways.

Effective January 1, 2011, there can be no reimbursement for over-the-counter medicines or drugs (except insulin) purchased without a prescription. The IRS has also provided special rules regarding the types of transactions and substantiation requirements for which prescribed over-the-counter drugs may be purchased using a Health FSA or HRA debit card, effective January 16, 2011.

Plan sponsors need to amend their Health FSA (cafeteria plans) and/or HRA plan documents to reflect this change no later than June 30, 2011.

These dates may appear to be a misprint since the effective date has already passed, but the amendment must be effective retroactively to apply to expenses incurred on or after January 1, 2011 (January 16, 2011, with respect to debit card purchases). Many plan sponsors already adopted the necessary plan amendments at or near the end of the 2010 calendar year.

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But for any plan sponsors that have not yet done so, we wanted to make sure you were aware that the deadline to adopt these plan amendments is rapidly approaching.

This was originally published on Fisher & Phillips’ Legal Alerts. This Legal Alert is intended to provide an overview of an important new law. It is not intended to be, nor should it be construed as, legal advice for any particular fact situation.

Callan Carter is a partner in the San Francisco office of the law firm Fisher & Phillips, and a member of the firm's Employee Benefits Practice Group. Callan advises clients on employee benefits law including plan design, drafting, implementation and termination of qualified retirement plans, health and welfare plans (including state and local mandated benefits), fringe benefit programs, and non-qualified deferred compensation arrangements.

Contact her at ccarter@laborlawyers.com.

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