I 

108TH CONGRESS 

1ST SESSION H. R. 518

To amend the Internal Revenue Code of 1986 to increase portability among 

retirement plans. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 31, 2003

Mr. POMEROY introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and the Workforce, for a period to be subsequently determined by 

the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL

To amend the Internal Revenue Code of 1986 to increase 

portability among 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. SHORT TITLE; AMENDMENT OF 1986 CODE; 

4 TABLE OF CONTENTS. 

5 (a) SHORT TITLE.—This Act may be cited as the 

6 ‘‘Retirement Account Portability Improvement Act of 

7 2003’’. 

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend-
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1 ment or repeal is expressed in terms of an amendment 

2 to, or repeal of, a section or other provision, the reference 

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986. 

5 (c) TABLE OF CONTENTS.—The table of contents of 

6 this Act is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents. 

Sec. 2. Allow rollovers to spouse’s retirement plans. 

Sec. 3. Rollovers by nonspouse beneficiaries. 

Sec. 4. Facilitation under fiduciary rules of certain rollovers and annuity distributions. 

Sec. 5. Faster vesting of employer nonelective contributions. 

Sec. 6. Allow direct rollovers from retirement plans to Roth IRAs. 

Sec. 7. Rollover of after-tax amounts in annuity contracts. 

Sec. 8. Elimination of higher penalty on certain SIMPLE distributions. 

Sec. 9. SIMPLE plan portability. 

Sec. 10. Clarifications regarding purchase of permissive service credit. 

Sec. 11. Certain rollovers of benefits permitted. 

Sec. 12. Disposition of unused health benefits in cafeteria plans and flexible 

spending arrangements.

7 SEC. 2. ALLOW ROLLOVERS TO SPOUSE’S RETIREMENT 

8 PLANS. 

9 (a) EXEMPT TRUSTS.—Paragraph (9) of section 

10 402(c) (relating to rollover where spouse receives distribu11 tion after death of employee) is amended—

12 (1) by inserting ‘‘or transferred by the employee 

13 to the spouse’’ after ‘‘after the employee’s death’’ in 

14 the text, and 

15 (2) by amending the heading to read as follows: 

16 ‘‘ROLLOVER WHERE SPOUSE OF EMPLOYEE RE17 CEIVES DISTRIBUTION.—’’. 
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1 (b) IRAS.—Paragraph (3) of section 408(d) (relating 

2 to rollover contributions) is amended by adding at the end 

3 the following: 

4 ‘‘(J) ROLLOVERS TO SPOUSE’S AC5 COUNT.—For purposes of this paragraph, rules 

6 similar to the rules of section 402(c)(9) shall 

7 apply, except that the term ‘individual’ shall be 

8 applied in lieu of ‘employee’.’’. 

9 (c) EMPLOYEE ANNUITIES.—Subparagraph (B) of 

10 section 403(a)(4) (relating to rollover amounts) is amend11 ed by inserting ‘‘and (9)’’ after ‘‘through (7)’’. 

12 (d) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to years beginning after the date 

14 of the enactment of this Act.

15 SEC. 3. ROLLOVERS BY NONSPOUSE BENEFICIARIES. 

16 (a) IN GENERAL.—

17 (1) QUALIFIED PLANS.—Section 402(c) (relat18 ing to rollovers from exempt trusts) is amended by 

19 adding at the end the following new paragraph: 

20 ‘‘(11) ROLLOVER WHERE NONSPOUSE BENE21 FICIARY RECEIVES DISTRIBUTION AFTER DEATH OF

22 EMPLOYEE.—

23 ‘‘(A) IN GENERAL.—If any distribution at24 tributable to an employee is paid to a des25 ignated beneficiary (as defined by section 
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1 401(a)(9)(E)) other than the surviving spouse 

2 of the employee after the employee’s death, the 

3 preceding provisions of this subsection shall 

4 apply to such distribution in the same manner 

5 as if the designated beneficiary were the em6 ployee, except that only a plan described in 

7 clause (i) or (ii) of paragraph (8)(B) that is es8 tablished in the name of the employee for the 

9 benefit of the designated beneficiary shall be 

10 treated as an eligible retirement plan with re11 spect to such distribution. 

12 ‘‘(B) SPECIAL RULES.—

13 ‘‘(i) DEATH OF EMPLOYEE BEFORE

14 ENTIRE INTEREST DISTRIBUTED.—An eli15 gible retirement plan that receives a trans16 fer described in this paragraph shall, with 

17 respect to amounts attributable to such 

18 transferred amount, be subject to rules 

19 similar to clauses (ii) and (iii) of section 

20 401(a)(9)(B). 

21 ‘‘(ii) DISTRIBUTIONS ATTRIBUTED TO

22 EMPLOYEE.—For purposes of this sub23 section, any distribution from the eligible 

24 retirement plan of amounts attributable to 

25 such transferred amount shall be treated 
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1 as a distribution attributable to the em2 ployee, not as a distribution attributable to 

3 the designated beneficiary.’’. 

4 (2) SECTION 403(a) PLANS.—Subparagraph (B) 

5 of section 403(a)(4) is amended by striking ‘‘and 

6 (9)’’ and inserting ‘‘, (9), and (11)’’. 

7 (3) SECTION 403(b) PLANS.—Subparagraph (B) 

8 of section 403(b)(8) is amended by striking ‘‘and 

9 (9)’’ and inserting ‘‘, (9), and (10)’’. 

10 (4) SECTION 457 PLANS.—Subparagraph (B) of 

11 section 457(e)(16) is amended by striking ‘‘and (9)’’ 

12 and inserting ‘‘, (9), and (10)’’. 

13 (b) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to distributions after December 31, 

15 2002.

16 SEC. 4. FACILITATION UNDER FIDUCIARY RULES OF CER17 TAIN ROLLOVERS AND ANNUITY DISTRIBU18 TIONS. 

19 (a) IN GENERAL.—Section 404(c) of the Employee 

20 Retirement Income Security Act of 1974 (29 U.S.C. 

21 1104(c)) is amended by adding at the end the following 

22 new paragraph: 

23 ‘‘(4)(A) In the case of a pension plan which makes 

24 a transfer under section 401(a)(31)(A) of the Internal 

25 Revenue Code of 1986 to an individual retirement plan
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1 (as defined in section 7701(a)(37) of such Code) in con2 nection with a participant or beneficiary or makes a dis3 tribution to a participant or beneficiary of an annuity con4 tract described in subparagraph (B), the participant or 

5 beneficiary shall, for purposes of paragraph (1), be treated 

6 as exercising control over the transfer or distribution if—

7 ‘‘(i) the participant or beneficiary elected such 

8 transfer or distribution, and 

9 ‘‘(ii) in connection with such election, the par10 ticipant or beneficiary was given an opportunity to 

11 elect any other individual retirement plan (in the 

12 case of a transfer) or any other annuity contract de13 scribed in subparagraph (B) (in the case of a dis14 tribution). 

15 ‘‘(B) An annuity contract is described in this sub16 paragraph if it provides, either on an immediate or de17 ferred basis, a series of substantially equal periodic pay18 ments (not less frequently than annually) for the life of 

19 the employee or the joint lives of the employee and the 

20 employee’s designated beneficiary. Annuity payments shall 

21 not fail to be treated as part of a series of substantially 

22 equal periodic payments because the amount of the peri23 odic payments may vary in accordance with investment ex24 perience, reallocations among investment options, actu25 arial gains or losses, cost of living indices, or similar fluc-
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1 tuating criteria. The availability of a commutation benefit, 

2 a minimum period of payments certain, or a minimum 

3 amount to be paid in any event shall not affect the treat4 ment of an annuity contract as an annuity contract de5 scribed in this subparagraph. 

6 ‘‘(C) Under regulations prescribed by the Secretary, 

7 this paragraph shall apply without regard to whether the 

8 particular individual retirement plan receiving the transfer 

9 or the particular annuity contract being distributed is spe10 cifically identified by the pension plan as available to the 

11 participant or beneficiary. 

12 ‘‘(D) Notwithstanding the preceding provisions of 

13 this paragraph, paragraph (1)(B) shall not apply with re14 spect to liability under section 406 in connection with the 

15 specific identification of any individual retirement plan or 

16 annuity contract as being available to the participant or 

17 beneficiary.’’. 

18 (b) EFFECTIVE DATE AND RELATED RULES.—

19 (1) EFFECTIVE DATE.—The amendment made 

20 by this section shall take effect on the date of the 

21 enactment of this Act. 

22 (2) ISSUANCE OF FINAL REGULATIONS.—Final 

23 regulations under section 404(c)(4) of the Employee 

24 Retirement Income Security Act of 1974 (added by 
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1 this section) shall be issued no later than 1 year 

2 after the date of the enactment of this Act. 

3 SEC. 5. FASTER VESTING OF EMPLOYER NONELECTIVE 

4 CONTRIBUTIONS. 

5 (a) AMENDMENTS TO THE INTERNAL REVENUE

6 CODE OF 1986.—

7 (1) IN GENERAL.—Paragraph (2) of section 

8 411(a) (relating to employer contributions) is 

9 amended to read as follows: 

10 ‘‘(2) EMPLOYER CONTRIBUTIONS.—

11 ‘‘(A) DEFINED BENEFIT PLANS.—

12 ‘‘(i) IN GENERAL.—In the case of a 

13 defined benefit plan, a plan satisfies the 

14 requirements of this paragraph if it satis15 fies the requirements of clause (ii) or (iii). 

16 ‘‘(ii) 5-YEAR VESTING.—A plan satis17 fies the requirements of this clause if an 

18 employee who has completed at least 5 

19 years of service has a nonforfeitable right 

20 to 100 percent of the employee’s accrued 

21 benefit derived from employer contribu22 tions. 

23 ‘‘(iii) 3 TO 7 YEAR VESTING.—A plan 

24 satisfies the requirements of this clause if 

25 an employee has a nonforfeitable right to 
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1 a percentage of the employee’s accrued 

2 benefit derived from employer contribu3 tions determined under the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

3 ................................................................................... 20

4 ................................................................................... 40

5 ................................................................................... 60

6 ................................................................................... 80

7 or more ...................................................................... 100.

4 ‘‘(B) DEFINED CONTRIBUTION PLANS.—

5 ‘‘(i) IN GENERAL.—In the case of a 

6 defined contribution plan, a plan satisfies 

7 the requirements of this paragraph if it 

8 satisfies the requirements of clause (ii) or 

9 (iii). 

10 ‘‘(ii) 3-YEAR VESTING.—A plan satis11 fies the requirements of this clause if an 

12 employee who has completed at least 3 

13 years of service has a nonforfeitable right 

14 to 100 percent of the employee’s accrued 

15 benefit derived from employer contribu16 tions. 

17 ‘‘(iii) 2 TO 6 YEAR VESTING.—A plan 

18 satisfies the requirements of this clause if 

19 an employee has a nonforfeitable right to 

20 a percentage of the employee’s accrued 

21 benefit derived from employer contribu22 tions determined under the following table:
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The nonforfeitable 

‘‘Years of service: percentage is:

2 ................................................................................... 20

3 ................................................................................... 40

4 ................................................................................... 60

5 ................................................................................... 80

6 ................................................................................... 100.’’.

1 (2) CONFORMING AMENDMENT.—Section 

2 411(a) (relating to general rule for minimum vesting 

3 standards) is amended by striking paragraph (12). 

4 (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT

5 INCOME SECURITY ACT OF 1974.—

6 (1) IN GENERAL.—Paragraph (2) of section 

7 203(a) of the Employee Retirement Income Security 

8 Act of 1974 (29 U.S.C. 1053(a)(2)) is amended to 

9 read as follows: 

10 ‘‘(2)(A)(i) In the case of a defined benefit plan, 

11 a plan satisfies the requirements of this paragraph 

12 if it satisfies the requirements of clause (ii) or (iii). 

13 ‘‘(ii) A plan satisfies the requirements of this 

14 clause if an employee who has completed at least 5 

15 years of service has a nonforfeitable right to 100 

16 percent of the employee’s accrued benefit derived 

17 from employer contributions. 

18 ‘‘(iii) A plan satisfies the requirements of this 

19 clause if an employee has a nonforfeitable right to 

20 a percentage of the employee’s accrued benefit de-
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1 rived from employer contributions determined under 

2 the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

3 ................................................................................... 20

4 ................................................................................... 40

5 ................................................................................... 60

6 ................................................................................... 80

7 or more ...................................................................... 100.

3 ‘‘(B)(i) In the case of an individual account 

4 plan, a plan satisfies the requirements of this para5 graph if it satisfies the requirements of clause (ii) or 

6 (iii). 

7 ‘‘(ii) A plan satisfies the requirements of this 

8 clause if an employee who has completed at least 3 

9 years of service has a nonforfeitable right to 100 

10 percent of the employee’s accrued benefit derived 

11 from employer contributions. 

12 ‘‘(iii) A plan satisfies the requirements of this 

13 clause if an employee has a nonforfeitable right to 

14 a percentage of the employee’s accrued benefit de15 rived from employer contributions determined under 

16 the following table:

The nonforfeitable 

‘‘Years of service: percentage is:

2 ................................................................................... 20

3 ................................................................................... 40

4 ................................................................................... 60

5 ................................................................................... 80

6 ................................................................................... 100.’’.
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1 (2) CONFORMING AMENDMENT.—Section 

2 203(a) of such Act is amended by striking para3 graph (4). 

4 (c) EFFECTIVE DATES.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section 

7 shall apply to contributions for plan years beginning 

8 after December 31, 2003. 

9 (2) COLLECTIVE BARGAINING AGREEMENTS.—

10 In the case of a plan maintained pursuant to one or 

11 more collective bargaining agreements between em12 ployee representatives and one or more employers 

13 ratified by the date of the enactment of this Act, the 

14 amendments made by this section shall not apply to 

15 contributions on behalf of employees covered by any 

16 such agreement for plan years beginning before the 

17 earlier of—

18 (A) the later of—

19 (i) the date on which the last of such 

20 collective bargaining agreements termi21 nates (determined without regard to any 

22 extension thereof on or after such date of 

23 the enactment); or 

24 (ii) January 1, 2004; or 

25 (B) January 1, 2008. 
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1 (3) SERVICE REQUIRED.—With respect to any 

2 plan, the amendments made by this section shall not 

3 apply to any employee before the date that such em4 ployee has 1 hour of service under such plan in any 

5 plan year to which the amendments made by this 

6 section apply. 

7 SEC. 6. ALLOW DIRECT ROLLOVERS FROM RETIREMENT 

8 PLANS TO ROTH IRAS. 

9 (a) IN GENERAL.—Subsection (e) of section 408A 

10 (defining qualified rollover contribution) is amended to 

11 read as follows: 

12 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 

13 purposes of this section, the term ‘qualified rollover con14 tribution’ means a rollover contribution—

15 ‘‘(1) to a Roth IRA from another such account, 

16 ‘‘(2) from an eligible retirement plan, but only 

17 if—

18 ‘‘(A) in the case of an individual retire19 ment plan, such rollover contribution meets the 

20 requirements of section 408(d)(3), and 

21 ‘‘(B) in the case of any eligible retirement 

22 plan (as defined in section 402(c)(8)(B) other 

23 than clauses (i) and (ii) thereof), such rollover 

24 contribution meets the requirements of section 

25 402(c), 403(b)(8), or 457(e)(16), as applicable. 
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1 For purposes of section 408(d)(3)(B), there shall be dis2 regarded any qualified rollover contribution from an indi3 vidual retirement plan (other than a Roth IRA) to a Roth 

4 IRA.’’. 

5 (b) CONFORMING AMENDMENTS.—

6 (1) Section 408A(c)(3)(B) is amended—

7 (A) in the text by striking ‘‘individual re8 tirement plan’’ and inserting ‘‘an eligible retire9 ment plan (as defined by section 

10 402(c)(8)(B))’’, and 

11 (B) in the heading by striking ‘‘IRA’’ and 

12 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

13 (2) Section 408A(d)(3) is amended—

14 (A) in subparagraph (A) by striking ‘‘sec15 tion 408(d)(3)’’ inserting ‘‘sections 402(c), 

16 403(b)(8), 408(d)(3), and 457(e)(16)’’, 

17 (B) in subparagraph (B) by striking ‘‘indi18 vidual retirement plan’’ and inserting ‘‘eligible 

19 retirement plan (as defined by section 

20 402(c)(8)(B))’’, 

21 (C) in subparagraph (D) by striking ‘‘or 

22 6047’’ after ‘‘408(i)’’, 

23 (D) in subparagraph (D) by striking ‘‘or 

24 both’’ and inserting ‘‘persons subject to section
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1 6047(d)(1), or all of the foregoing persons’’, 

2 and 

3 (E) in the heading by striking ‘‘IRA’’ and 

4 inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 

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

6 this section shall apply to distributions after December 31, 

7 2003. 

8 SEC. 7. ROLLOVER OF AFTER-TAX AMOUNTS IN ANNUITY 

9 CONTRACTS. 

10 (a) IN GENERAL.—Subparagraph (A) of section 

11 402(c)(2) (maximum amount which may be rolled over) 

12 is amended by striking ‘‘and which’’ and inserting ‘‘or to 

13 an annuity contract described in section 403(b) and such 

14 plan or contract’’. 

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

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

17 December 31, 2003. 

18 SEC. 8. ELIMINATION OF HIGHER PENALTY ON CERTAIN 

19 SIMPLE DISTRIBUTIONS. 

20 (a) IN GENERAL.—Subsection (t) of section 72 (re21 lating to 10-percent additional tax on early distributions 

22 from qualified retirement plans) is amended by striking 

23 paragraph (6) and redesignating paragraphs (7), (8), and 

24 (9) as paragraphs (6), (7), and (8), respectively. 

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 72(t)(2)(E) is amended by striking 

2 ‘‘paragraph (7)’’ and inserting ‘‘paragraph (6)’’. 

3 (2) Section 72(t)(2)(F) is amended by striking 

4 ‘‘paragraph (8)’’ and inserting ‘‘paragraph (7)’’. 

5 (3) Section 408(d)(3)(G) is amended by insert6 ing by striking ‘‘applies’’ and inserting ‘‘applied on 

7 the day before the date of the enactment of Retire8 ment Account Portability Improvement Act of 

9 2003)’’. 

10 (4) Section 457(a)(2) is amended by striking 

11 ‘‘section 72(t)(9)’’ and inserting ‘‘section 72(t)(8)’’. 

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

13 this section shall apply to years beginning after December 

14 31, 2003. 

15 SEC. 9. SIMPLE PLAN PORTABILITY. 

16 (a) REPEAL OF LIMITATION.—Paragraph (3) of sec17 tion 408(d) (relating to rollover contributions) is amended 

18 by striking subparagraph (G) and redesignating subpara19 graphs (H), (I), and (J) as subparagraphs (G), (H), and 

20 (I), respectively. 

21 (b) Section 402(c)(8)(B) is amended by adding at the 

22 end the following new sentence: ‘‘Individual retirement ac23 counts and individual retirement annuities described in 

24 clauses (i) and (ii) shall be treated as eligible retirement 

25 plans without regard to whether they are part of a sim-
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1 plified employee pension (within the meaning of section 

2 408(k)) or a simplified retirement account (within the 

3 meaning of section 408(p)).’’. 

4 (c) EFFECTIVE DATE.—The amendment made by 

5 this section shall apply to years beginning after December 

6 31, 2003. 

7 SEC. 10. CLARIFICATIONS REGARDING PURCHASE OF PER8 MISSIVE SERVICE CREDIT. 

9 (a) IN GENERAL.—Subparagraph (A) of section 

10 457(e)(17) (relating to trustee-to-trustee transfers to pur11 chase permissive service credit), and subparagraph (A) of 

12 section 403(b)(13) (relating to trustee-to-trustee transfers 

13 to purchase permissive service credit), are both amended 

14 by striking ‘‘section 415(n)(3)(A)’’ and inserting ‘‘section 

15 415(n)(3) (without regard to subparagraphs (B) and (C) 

16 thereof)’’. 

17 (b) TRANSFERS MAY BE FROM ANY GOVERNMENTAL

18 PLAN.—Section 457(e)(17), and section 403(b)(13), are 

19 both amended by inserting ‘‘from any governmental plan 

20 (as so defined)’’ after ‘‘414(d))’’. 

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

22 this section shall take effect as if included in the amend23 ments made by section 647 of the Economic Growth and 

24 Tax Relief Reconciliation Act of 2001.
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1 SEC. 11. CERTAIN ROLLOVERS OF BENEFITS PERMITTED. 

2 (a) IN GENERAL.—Paragraph (10) of section 457(e) 

3 is amended—

4 (1) by striking ‘‘A participant’’ and inserting 

5 ‘‘(A) EXCLUSION FROM INCOME.—A participant’’, 

6 and 

7 (2) by adding at the end the following: 

8 ‘‘(B) TRANSFERS PERMITTED.—A transfer 

9 from one such plan to another such plan of the 

10 entire benefit of one or more participants shall 

11 not fail to be permitted solely because all assets 

12 of the transferor plan are not transferred to the 

13 transferee plan.’’. 

14 (b) EFFECTIVE DATE.—

15 (1) IN GENERAL.—The amendments made by 

16 this section shall apply to taxable years beginning 

17 after December 31, 2003. 

18 (2) SPECIAL RULE.—An individual shall not be 

19 precluded from participating in an eligible deferred 

20 compensation plan by reason of having received a 

21 distribution under section 457(e)(9) of the Internal 

22 Revenue Code of 1986 as in effect prior to the en23 actment of the Small Business Job Protection Act of 

24 1996.
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1 SEC. 12. DISPOSITION OF UNUSED HEALTH BENEFITS IN 

2 CAFETERIA PLANS AND FLEXIBLE SPENDING 

3 ARRANGEMENTS. 

4 (a) IN GENERAL.—Section 125 (relating to cafeteria 

5 plans) is amended by redesignating subsections (h) and 

6 (i) as subsections (i) and (j), respectively, and by inserting 

7 after subsection (g) the following: 

8 ‘‘(h) CARRYFORWARDS OR PAYMENTS OF CERTAIN

9 UNUSED HEALTH BENEFITS.—

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

11 a plan or other arrangement shall not fail to be 

12 treated as a cafeteria plan solely because qualified 

13 benefits under such plan include a health flexible 

14 spending arrangement under which not more than 

15 $500 of unused health benefits may be contributed 

16 on behalf of an employee to a qualified retirement 

17 plan (as defined in section 4974(c)) or an eligible 

18 deferred compensation plan (as defined in section 

19 457(b)). 

20 ‘‘(2) CONTRIBUTION OF UNUSED HEALTH BEN21 EFITS ON BEHALF OF EMPLOYEE.—For purposes of 

22 this title, contributions on behalf of an employee de23 scribed in paragraph (1) shall be treated as elective 

24 contributions made pursuant to a choice by the em25 ployee between such contributions and compensation 

26 which would otherwise be includible in the gross in-
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1 come of the employee. Contributions described in 

2 paragraph (1) shall be excluded from the gross in3 come of the employee, or included in the gross in4 come of the employee and allowed as a deduction by 

5 the employee, to the extent that elective contribu6 tions would be treated in that manner under this 

7 title. 

8 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE9 MENT.—For purposes of this subsection, the term 

10 ‘health flexible spending arrangement’ means a flexi11 ble spending arrangement (as defined in section 

12 106(c)) that is a qualified benefit and only permits 

13 reimbursement for expenses for medical care (as de14 fined in section 213(d)(1) (without regard to sub15 paragraphs (C) and (D) thereof). 

16 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur17 poses of this subsection, with respect to an em18 ployee, the term ‘unused health benefits’ means the 

19 excess of—

20 ‘‘(A) the maximum amount of reimburse21 ment allowable to the employee during a plan 

22 year under a health flexible spending arrange23 ment, taking into account any election by the 

24 employee, over 
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1 ‘‘(B) the actual amount of reimbursement 

2 during such year under such arrangement.’’. 

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

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

5 December 31, 2003.

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