I 

108TH CONGRESS 

2D SESSION H. R. 4007

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 

MARCH 18, 2004

Mr. ROYCE (for himself, Mr. DREIER, Mr. PAUL, and Mr. ROHRABACHER) 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 subsection (h) as subsection (i) and by 

2 inserting after subsection (g) the following new subsection: 

3 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

4 BENEFITS.—

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

6 a plan or other arrangement shall not fail to be 

7 treated as a cafeteria plan solely because qualified 

8 benefits under such plan include a health flexible 

9 spending arrangement under which not more than 

10 $500 of unused health benefits may be—

11 ‘‘(A) carried forward to the succeeding 

12 plan year of such health flexible spending ar13 rangement, 

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

15 223, contributed on behalf of the employee to a 

16 health savings account (as defined in section 

17 223(d)), maintained for the benefit of such em18 ployee, or 

19 ‘‘(C) contributed to a qualified retirement 

20 plan (as defined in section 4974(c)), or an eligi21 ble deferred compensation plan (as defined in 

22 section 457(b)) of an eligible employer de23 scribed in section 457(e)(1)(A). 

24 ‘‘(2) SPECIAL RULES FOR TREATMENT OF CON25 TRIBUTIONS TO HEALTH AND RETIREMENT
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1 PLANS.—For purposes of this title, contributions 

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

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

4 made by the employee (and includible in the 

5 gross income of such employee) in the case of 

6 a contribution to a health savings account, 

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

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

9 contributions to a qualified cash or deferred ar10 rangement (as defined in section 401(k)) or to 

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

12 ‘‘(C) shall be treated as employer contribu13 tions to which the employee has a nonforfeitable 

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

15 described in subparagraph (A)) which is de16 scribed in section 401(a) which includes a trust 

17 exempt from tax under section 501(a), 

18 ‘‘(D) shall be treated as deferred com19 pensation in the case of contributions to an eli20 gible deferred compensation plan (as defined in 

21 section 457(b)), and 

22 ‘‘(E) shall be treated in the manner des23 ignated for purposes of section 408 or 408A in 

24 the case of contributions to an individual retire25 ment plan. 
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1 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE2 MENT.—For purposes of this subsection, the term 

3 ‘health flexible spending arrangement’ means a flexi4 ble spending arrangement (as defined in section 

5 106(c)) that is a qualified benefit and only permits 

6 reimbursement for expenses for medical care (as de7 fined in section 213(d)(1) (without regard to sub8 paragraphs (C) and (D) thereof). 

9 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur10 poses of this subsection, with respect to an em11 ployee, the term ‘unused health benefits’ means the 

12 excess of—

13 ‘‘(A) the maximum amount of reimburse14 ment allowable to the employee during a plan 

15 year under a health flexible spending arrange16 ment, taking into account any election by the 

17 employee, over 

18 ‘‘(B) the actual amount of reimbursement 

19 during such year under such arrangement.’’. 

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

21 subsection (a) shall apply to taxable years beginning after 

22 December 31, 2003.

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