II 

111TH CONGRESS 

1ST SESSION S. 2883 

To amend the Internal Revenue Code of 1986 to provide for the distribution 

of remaining balances in flexible spending arrangements upon termination 

from employment. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 15, 2009 

Mr. JOHANNS introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for the distribution of remaining balances in flexible 

spending arrangements upon termination from employment. 

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

3 SECTION 1. DISTRIBUTION OF REMAINING BALANCES IN 

4 FLEXIBLE SPENDING ARRANGEMENTS UPON 

5 TERMINATION FROM EMPLOYMENT. 

6 (a) IN GENERAL.—Section 125 of the Internal Rev7 enue Code of 1986 is amended by redesignating sub8 sections (i) and (j) as subsections (j) and (k), respectively, 


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1 and by inserting after subsection (h) the following new 

2 subsection: 

3 ‘‘(i) DISTRIBUTION OF REMAINING BALANCES IN

4 FLEXIBLE SPENDING ARRANGEMENTS UPON TERMI5 NATION FROM EMPLOYMENT.— 

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

7 a plan or other arrangement shall not fail to be 

8 treated as a health flexible spending arrangement or 

9 a dependent care flexible spending arrangement sole10 ly because under the plan or arrangement a partici11 pant is permitted access to any unused balance in 

12 the participant’s accounts under such plan or ar13 rangement in the manner provided under paragraph 

14 (2). 

15 ‘‘(2) DISTRIBUTION UPON TERMINATION.— 

16 ‘‘(A) IN GENERAL.—A plan or arrange17 ment shall permit a participant (or any des18 ignated heir of the participant) to receive a 

19 cash payment equal to the aggregate unused ac20 count balances in the plan or arrangement as of 

21 the date the individual is separated (including 

22 by death or disability) from employment with 

23 the employer maintaining the plan or arrange24 ment. 


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1 ‘‘(B) INCLUSION IN INCOME.—Any pay2 ment under subparagraph (A) shall be includ3 ible in gross income for the taxable year in 

4 which such payment is distributed to the em5 ployee. 

6 ‘‘(3) TERMS RELATING TO FLEXIBLE SPENDING

7 ARRANGEMENTS.—For purposes of this section— 

8 ‘‘(A) FLEXIBLE SPENDING ARRANGE9 MENTS.—A flexible spending arrangement is a 

10 benefit program which provides employees with 

11 coverage under which specified incurred ex12 penses may be reimbursed (subject to reim13 bursement maximums and other reasonable 

14 conditions). 

15 ‘‘(B) HEALTH AND DEPENDENT CARE AR16 RANGEMENTS.—The terms ‘health flexible 

17 spending arrangement’ and ‘dependent care 

18 flexible spending arrangement’ means any flexi19 ble spending arrangement (or portion thereof) 

20 which provides payments for expenses incurred 

21 for medical care (as defined in section 213(d)) 

22 or dependent care (within the meaning of sec23 tion 129), respectively.’’. 

24 (b) CONFORMING AMENDMENTS.— 


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1 (1) The heading for section 125 of the Internal 

2 Revenue Code of 1986 is amended by inserting 

3 ‘‘AND FLEXIBLE SPENDING ARRANGEMENTS’’ 

4 after ‘‘PLANS’’. 

5 (2) The item relating to section 125 in the table 

6 of sections for part III of subchapter B of chapter 

7 1 of such Code is amended by inserting ‘‘and flexible 

8 spending arrangements’’ after ‘‘plans’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall take effect on the date of the enactment 

11 of this Act. 

Æ 


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