I 

109TH CONGRESS 

1ST SESSION H. R. 1803 

To amend the Internal Revenue Code of 1986 to allow amounts in a health 

flexible spending arrangement that are unused during a plan year to 

be carried over to subsequent plan years or deposited into certain health 

or retirement plans. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 21, 2005 

Mr. ROYCE introduced the following bill; which was referred to the Committee 

on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to allow 

amounts in a health flexible spending arrangement that 

are unused during a plan year to be carried over to 

subsequent plan years or deposited into certain health 

or retirement plans. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. DISPOSITION OF UNUSED HEALTH BENEFITS 

4 IN CAFETERIA PLANS AND FLEXIBLE SPEND5 ING ARRANGEMENTS. 

6 (a) IN GENERAL.—Section 125 of the Internal Rev7 enue Code of 1986 (relating to cafeteria plans) is amended 
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1 by redesignating subsections (h) and (i) as subsections (i) 

2 and (j), respectively, and by inserting after subsection (g) 

3 the following new subsection: 

4 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

5 BENEFITS.— 

6 ‘‘(1) IN GENERAL.—For purposes of this title, 

7 a plan or other arrangement shall not fail to be 

8 treated as a cafeteria plan solely because qualified 

9 benefits under such plan include a health flexible 

10 spending arrangement under which not more than 

11 $500 of unused health benefits may be— 

12 ‘‘(A) carried forward to the succeeding 

13 plan year of such health flexible spending ar14 rangement, 

15 ‘‘(B) to the extent permitted by sections 

16 223, contributed on behalf of the employee to a 

17 health savings account (as defined in section 

18 223(d)), maintained for the benefit of such em19 ployee, or 

20 ‘‘(C) contributed to a qualified retirement 

21 plan (as defined in section 4974(c)), or an eligi22 ble deferred compensation plan (as defined in 

23 section 457(b)) of an eligible employer de24 scribed in section 457(e)(1)(A). 
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1 ‘‘(2) SPECIAL RULES FOR TREATMENT OF CON2 TRIBUTIONS TO HEALTH AND RETIREMENT

3 PLANS.—For purposes of this title, contributions 

4 under subparagraph (B) or (C) of paragraph (1)— 

5 ‘‘(A) shall be treated as a contribution 

6 made by the employee (and includible in the 

7 gross income of such employee) in the case of 

8 a contribution to a health savings account, 

9 ‘‘(B) shall be treated as elective deferrals 

10 (as defined in section 402(g)(3)) in the case of 

11 contributions to a qualified cash or deferred ar12 rangement (as defined in section 401(k)) or to 

13 an annuity contract described in section 403(b), 

14 ‘‘(C) shall be treated as employer contribu15 tions to which the employee has a nonforfeitable 

16 right in the case of a plan (other than a plan 

17 described in subparagraph (A)) which is de18 scribed in section 401(a) which includes a trust 

19 exempt from tax under section 501(a), 

20 ‘‘(D) shall be treated as deferred com21 pensation in the case of contributions to an eli22 gible deferred compensation plan (as defined in 

23 section 457(b)), and 

24 ‘‘(E) shall be treated in the manner des25 ignated for purposes of section 408 or 408A in 
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1 the case of contributions to an individual retire2 ment plan. 

3 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE4 MENT.—For purposes of this subsection, the term 

5 ‘health flexible spending arrangement’ means a flexi6 ble spending arrangement (as defined in section 

7 106(c)) that is a qualified benefit and only permits 

8 reimbursement for expenses for medical care (as de9 fined in section 213(d)(1) (without regard to sub10 paragraphs (C) and (D) thereof). 

11 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur12 poses of this subsection, with respect to an em13 ployee, the term ‘unused health benefits’ means the 

14 excess of— 

15 ‘‘(A) the maximum amount of reimburse16 ment allowable to the employee during a plan 

17 year under a health flexible spending arrange18 ment, taking into account any election by the 

19 employee, over 

20 ‘‘(B) the actual amount of reimbursement 

21 during such year under such arrangement.’’. 

22 (b) EFFECTIVE DATE.—The amendment made by 

23 subsection (a) shall apply to plan years ending after the 

24 date of the enactment of this Act. 

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