August 3, 2007
IRS Issues Proposed Regulations Under Section 125
Earlier this week, the IRS announced the removal of existing temporary regulations regarding cafeteria plans under Section 125 of the Code. Today, the IRS issued comprehensive proposed regulations intended to replace the remaining proposed regulations regarding cafeteria plans under Section 125 of the Code. Comments regarding the proposed regulations are due by November 5, 2007, and the regulations are proposed to become effective for plan years starting in 2009.
The new proposed regulations reflect changes in the Internal Revenue Code since the earlier proposed and temporary regulations were issued. Changes from the prior regulations include use of the new definition of dependent adopted under WFTRA, the addition of new qualified benefits, such as adoption assistance and HSA contributions, the exclusion of non-qualified benefits, such as long-term care insurance and services, the addition of the key employee concentration test, and the addition of qualified HSA distributions from health FSAs.
We are reviewing the proposed regulations and will issue a substantive alert in the very near future.