I
106TH CONGRESS
1ST SESSION
H. R. 3034
To amend the Internal Revenue Code of 1986 to allow unused benefits
from cafeteria plans to be carried over into later years and used for
health care reimbursement rollover accounts and certain other plans,
arrangements, or accounts.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 6, 1999
Mr. ROYCE (for himself and Mr. DUNCAN) 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 un-
used benefits from cafeteria plans to be carried over
into later years and used for health care reimbursement
rollover accounts and certain other plans, arrangements,
or accounts.
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
CAFETERIA PLANS AND FLEXIBLE SPENDING
ARRANGEMENTS.
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue 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 $3,000 (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),
‘‘(vi) an education individual retire-
ment account (within the meaning of sec-
tion 530(b)), or
‘‘(vii) a health care reimbursement
rollover account described in section 530A.
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, 530, or
530A, whichever is applicable, and shall not be
taken into account in applying any limitation
(or participation requirement) on contributions
under such section or any other provision of
this chapter 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 1999, the $3,000 amount under para-
graph (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, 1999, and
any increase which is not a multiple of $50 shall be
rounded to the next lowest multiple of $50.’’
(b) HEALTH CARE REIMBURSEMENT ROLLOVER AC-
COUNT.—Subchapter F of chapter 1 of subtitle A of the
Internal Revenue Code of 1986 is amended by adding at
the end the following:
‘‘PART IX—HEALTH CARE REIM-
BURSEMENT ROLLOVER AC-
COUNTS
‘‘Sec. 530A. Health care reimbursement rollover accounts.
‘‘SEC. 530A. HEALTH CARE REIMBURSEMENT ROLLOVER
ACCOUNTS.
‘‘(a) GENERAL RULE.—A health care reimbursement
rollover account shall be exempt from taxation under this
subtitle unless such account has ceased to be a health care
reimbursement rollover account. Notwithstanding the pre-
ceding sentence, any such account is subject to the taxes
imposed by section 511 (relating to imposition of tax on
unrelated business income of charitable, etc. organiza-
tions).
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) HEALTH
CARE
REIMBURSEMENT
ROLL-
OVER ACCOUNT.—The term ‘health care reimburse-
ment rollover account’ means a trust created or or-
ganized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
‘‘(A) No contribution will be accepted un-
less it is a rollover contribution allowed under
section 125(h)(3).
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person (includ-
ing the employer of the account holder) who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
will administer the trust will be consistent with
the requirements of this section.
‘‘(C) The assets of the trust will be in-
vested only in appropriate guaranteed principle
and interest investments which provide 100 per-
cent liquidity.
‘‘(D) Contributions to the trust will not be
invested until the second year after the year the
contributions are made.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder for
medical care (as defined in section 213(d)) for
such individual, the spouse of such individual,
and any dependent (as defined in section 152)
of such individual, but only to the extent such
amounts are not compensated for by insurance
or otherwise.
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE
PURCHASED FROM ACCOUNT.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall not apply to any payment for cov-
erage under a group health plan of an em-
ployer of the account holder or the spouse
of the account holder.
‘‘(ii) EXCEPTIONS.—Clause (i) shall
not apply to any expense for coverage
under—
‘‘(I) a health plan during any pe-
riod of continuation coverage required
under any Federal law,
‘‘(II) a qualified long-term care
insurance contract (as defined in sec-
tion 7702B(b)), or
‘‘(III) a medicare supplemental
policy under section 1882 of the So-
cial Security Act.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
health care reimbursement rollover account was es-
tablished.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to rules under section 408(h) (relating to custodial
accounts) shall apply for purposes of this section.
‘‘(c) TAX
TREATMENT
OF
ACCOUNT
TERMI-
NATIONS.—Rules similar to the rules of paragraphs (2)
and (4) of section 408(e) shall apply to health care reim-
bursement rollover accounts and any amount treated as
distributed under such rules shall be treated as not used
to pay qualified medical expenses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL
EXPENSES.—Any amount paid or distributed out of
a health care reimbursement rollover account which
is used exclusively to pay qualified medical expenses
of any account holder shall not be includible in gross
income.
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—Any amount paid
or distributed out of a health care reimbursement
rollover account which is not used exclusively to pay
the qualified medical expenses of the account holder
shall be included in the gross income of such holder.
‘‘(3) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of determining the
amount of the deduction under section 213 or
162(l), any payment or distribution out of a health
care reimbursement rollover account for qualified
medical expenses shall not be treated as an expense
paid for medical care.
‘‘(4) TRANSFER OF ACCOUNT INCIDENT TO DI-
VORCE.—The transfer of an individual’s interest in
a health care reimbursement rollover account to an
individual’s spouse or former spouse under a divorce
or separation instrument described in subparagraph
(A) of section 71(b)(2) shall not be considered a tax-
able transfer made by such individual notwith-
standing any other provision of this subtitle, and
such interest shall, after such transfer, be treated as
a health care reimbursement rollover account with
respect to which such spouse is the account holder.
‘‘(5) TREATMENT AFTER DEATH OF ACCOUNT
HOLDER.—
‘‘(A) EXCLUSION FROM ESTATE TAX.—The
value of the gross estate under chapter 11 shall
be determined without regard to the value of
health care reimbursement rollover account.
‘‘(B) TRANSFER
OF
ACCOUNT
TO
DES-
IGNATED BENEFICIARY.—If any individual ac-
quires the account holder’s interest in a health
care reimbursement rollover account by reason
of being the designated beneficiary of such ac-
count at the death of such account holder, such
account shall be treated as if the beneficiary
were the account holder.
‘‘(C) SPECIAL RULE.—If any person other
than an individual acquires the account holder’s
interest in a health care reimbursement rollover
account by reason of being the designated bene-
ficiary of such account at the death of such ac-
count holder, such account shall cease to be a
health care reimbursement rollover account as
of the date of death.
‘‘(e) REPORTS.—The Secretary may require the
trustee of a health care reimbursement rollover account
to make such reports regarding such account to the Sec-
retary and to the account holder with respect to contribu-
tions, distributions, and such other matters as the Sec-
retary determines appropriate. The reports required by
this subsection shall be filed at such time and in such
manner and furnished to such individuals at such time and
in such manner as may be required by the Secretary.’’.
(c) CLERICAL AMENDMENT.—The table of parts for
subchapter F of chapter 1 of such Code is amended by
adding at the end the following new item:
‘‘Part IX. Health care reimbursement rollover accounts.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
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