Qualified Reservist Distribution

[Guest Min_Ma_Ja]

Does anyone have a client that intends on implementing this provision for health fsas under the HEART Act?

If yes, how does the money get distributed from the plan? Also, an employee that is called to active duty is entitled to all or a portion of the balance in the employee's account - does this mean the amount contributed to date, minus any reimbursements, or the entire amount elected for the year?

Any thoughts/guidance is appreciated - thanks.

[J Simmons]

No such client.

The qualified reservist distribution must be paid between the date of the order calling the individual up to active military service and the last date that reimbursements could otherwise be made for the plan year of that order. The Act is not clear on the amount of the payment. Is it the unused part of the annual amount elected less the unpaid salary reductions for the rest of the year? Or is it an amount by which salary reductions to date of call up in the year have been made less amount of reimbursements to that date? Or is it the annual flex amount less prior usage, disregarding that the entire annual flex account has not been paid for?Even the deadline for payment is somewhat in question. Is it the last day that expenses can be incurred under the flex, or is it the last day of the run-out period?

The payment is likely taxable income as HEART Act does not specify that it is tax-free and there are no corresponding 213(d) expenses. Is the employer required to run it through payroll, subject to payroll withholding and taxation? Or is it a Form 1099-MISC type of payment.

How do these payments play into the cafeteria plan's nondiscrimination testing? How is COBRA affected?

Inquiring minds want to know--and HEART Act doesn't answer them.

[Chaz]

Many clients are waiting to see if guidance comes down on a whole load of open issues.

[jstorch]

IRS issued guidance on this September 29, 2008, Notice 2008-82: http://www.irs.gov/irb/2008-41_IRB/ar09.html