SEC. 2. DISPOSITION OF UNUSED HEALTH BENEFITS IN 
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 (i) and (j) as subsections (j) 
and (k), respectively, and by inserting after subsection (h) 
the following new subsection: 
‘‘(i) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH 
BENEFITS.— 
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan or health flexible spend-
ing arrangement solely because qualified benefits 
under such plan include a health flexible spending 
arrangement under which not more than $500 of 
unused health benefits may be— 
‘‘(A) carried forward to the succeeding 
plan year of such health flexible spending ar-
rangement, 
‘‘(B) to the extent permitted by sections 
223, contributed on behalf of the employee to a 
health savings account (as defined in section 
223(d)), maintained for the benefit of such em-
ployee, or 
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‘‘(C) contributed to a qualified retirement 
plan (as defined in section 4974(c)), or an eligi-
ble deferred compensation plan (as defined in 
section 457(b)) of an eligible employer de-
scribed in section 457(e)(1)(A). 
‘‘(2) SPECIAL RULES FOR TREATMENT OF CON-
TRIBUTIONS
TO
HEALTH
AND
RETIREMENT 
PLANS.—For purposes of this title, contributions 
under subparagraph (B) or (C) of paragraph (1)— 
‘‘(A) shall be treated as a contribution 
made by the employee (and includible in the 
gross income of such employee) in the case of 
a contribution to a health savings account, 
‘‘(B) shall be treated as elective deferrals 
(as defined in section 402(g)(3)) in the case of 
contributions to a qualified cash or deferred ar-
rangement (as defined in section 401(k)) or to 
an annuity contract described in section 403(b), 
‘‘(C) shall be treated as employer contribu-
tions to which the employee has a nonforfeitable 
right in the case of a plan (other than a plan 
described in subparagraph (A)) which is de-
scribed in section 401(a) which includes a trust 
exempt from tax under section 501(a), 
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‘‘(D) shall be treated as deferred com-
pensation in the case of contributions to an eli-
gible deferred compensation plan (as defined in 
section 457(b)), and 
‘‘(E) shall be treated in the manner des-
ignated for purposes of section 408 or 408A in 
the case of contributions to an individual retire-
ment plan. 
‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term 
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section 
106(c)) that is a qualified benefit and only permits 
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1) (without regard to sub-
paragraphs (C) and (D) thereof). 
‘‘(4) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, with respect to an em-
ployee, the term ‘unused health benefits’ means the 
excess of— 
‘‘(A) the maximum amount of reimburse-
ment allowable to the employee during a plan 
year under a health flexible spending arrange-
ment, taking into account any election by the 
employee, over 
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‘‘(B) the actual amount of reimbursement 
during such year under such arrangement.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to plan years ending after the 
date of the enactment of this Act. 
Æ 
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