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Cafeteria Plans — Extension of "Use-It-Or-Lose-It" Deadline
By Joe Rankin & Bruce Delbecq
Employee Benefits Alert, November 2005
Opportunity
On May 18, 2005 the Internal Revenue Service released Notice 2005-42, which allows an extension of the "use-it-or-lose-it" deadline for flexible spending accounts.
Description
The notice permits a grace period immediately following the end of each plan year, during which unused benefits or contributions remaining at the end of the plan year may be paid or reimbursed to plan participants for qualified benefit expenses incurred during the grace period.
Employers are permitted, but not required, to allow such a grace period.
Action
Employers with December 31 cafeteria plan year ends must amend their plans before December 31, 2005 to allow for the grace period. Employer plans with other than December 31 plan year ends must be amended before the end of the plan year immediately preceding the grace period.
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