I
105TH CONGRESS
2D SESSION
H. R. 3552
To amend the Internal Revenue Code of 1986 to allow the carryover of
unused nontaxable benefits under cafeteria plans and flexible spending
arrangements, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 25, 1998
Mr. DREIER 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 the
carryover of unused nontaxable benefits under cafeteria
plans and flexible spending arrangements, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. CARRYOVER OF UNUSED BENEFITS FROM CAF-
ETERIA PLANS AND FLEXIBLE SPENDING AR-
RANGEMENTS.
(a) IN GENERAL.—Section 125 of the Internal Reve-
nue Code of 1986 (relating to cafeteria plans) is amended
by redesignating subsections (h) and (i) as subsections (i)
and (j), respectively, and by inserting after subsection (g)
the following new subsection:
‘‘(h) ALLOWANCE OF CARRYOVERS OF UNUSED BEN-
EFITS TO LATER TAXABLE YEARS.—
‘‘(1) IN GENERAL.—For purposes of this title—
‘‘(A) a plan or other arrangement shall not
fail to be treated as a cafeteria plan or flexible
spending or similar arrangement, and
‘‘(B) no amount shall be required to be in-
cluded in gross income by reason of this section
or any other provision of this chapter,
solely because under such plan or other arrangement
any nontaxable benefit which is unused as of the
close of a taxable year may be carried forward to 1
or more succeeding taxable years.
‘‘(2) LIMITATION.—Paragraph (1) shall not
apply to amounts carried from a plan to the extent
such amounts exceed $500 (applied on an annual
basis). For purposes of this paragraph, all plans and
arrangements maintained by an employer or any re-
lated person shall be treated as 1 plan.
‘‘(3) ALLOWANCE OF ROLLOVER.—
‘‘(A) IN GENERAL.—Each flexible spending
or similar arrangement which permits a carry-
over under paragraph (1) of an amount of un-
used benefit shall provide that each participant
may elect, in lieu of a carryover of such
amount, to have such amount distributed to the
participant.
‘‘(B) AMOUNTS
NOT
INCLUDED
IN
IN-
COME.—Any distribution under subparagraph
(A) shall not be included in gross income to the
extent that such amount is transferred in a
trustee-to-trustee transfer, or is contributed
within 60 days of the date of the distribution,
to—
‘‘(i) an individual retirement plan,
‘‘(ii) a qualified cash or deferred ar-
rangement described in section 401(k),
‘‘(iii) a plan under which amounts are
contributed by an individual’s employer for
an annuity contract described in section
403(b),
‘‘(iv) an eligible deferred compensa-
tion plan described in section 457,
‘‘(v) a medical savings account (within
the meaning of section 220), or
‘‘(vi) an education individual retire-
ment account (within the meaning of sec-
tion 530(b)).
Any amount rolled over under this subpara-
graph shall be treated as a rollover contribution
for the taxable year from which the unused
amount would otherwise be carried.
‘‘(C) TREATMENT
OF
ROLLOVER.—Any
amount rolled over under subparagraph (B)
shall be treated as an eligible rollover under
section 219, 220, 401(k), 403(b), 457, or 530,
whichever is applicable, and shall not be taken
into account in applying any limitation (or par-
ticipation requirement) on contributions under
such section or any other provision of this chap-
ter for the taxable year of the rollover.
‘‘(4) COST-OF-LIVING
ADJUSTMENT.—In the
case of any taxable year beginning in a calendar
year after 1998, the $500 amount under paragraph
(2) shall be adjusted at the same time and in the
same manner as under section 415(d)(2), except
that the base period taken into account shall be the
calendar quarter beginning October 1, 1997, and
any increase which is not a multiple of $50 shall be
rounded to the next lowest multiple of $50.’’