Bailout – Benefits Style: Last minute guidance from the IRS
December 19, 2008
403(b) Plan Final Regulations – Partial and Temporary Relief (IRS Notice 2009-3). IRS Final Regulations, including the written plan document requirement, were originally scheduled to be effective January 1, 2009. Among the many requirements contained in the Final Regulations, is the written plan document requirement. With respect to that requirement, the plan will not be treated as failing to satisfy the Final Regulations if:
- on or before, December 31, 2009, a written plan document is adopted intended to reflect the Final Regulations effective as of January 1, 2009;
- during 2009, the plan is operated in accordance with a reasonable good faith interpretation of Section 403(b) and the Final Regulations; and
- prior to the end of 2009, best efforts are made to retroactively correct operational failures to conform with Section 403(b) and the Final Regulations.
Note: Only the Final Regulation requirement that there be a written plan document in place by January 1, 2009 has been delayed. The other operational requirements under the Final Regulations are effective, as scheduled, on January 1, 2009.
Debit Cards for Drug Store and Pharmacy Merchant Category Codes (MCCs) – Still Breathing (IRS Notice 2008-104). Transitional relief originally intended to expire December 31, 2008, has been extended through June 30, 2009. As of January 1, 2009, debit cards associated with Section 105 medical reimbursement plans (including health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs)) were generally no longer to be used with respect to drug stores and pharmacies merchant category codes. The only expenses to be paid through a debit card were expenses incurred at (1) a store participating in the inventory information approval system (IIAS), or (2) a store location at which 90% of the store’s gross receipts during the prior taxable year were for Section 213(d) medical care. This rule is now scheduled to be effect on July 1, 2009. In the interim, the existing IRS guidance continues to apply, including the need for after-the-fact adjudication of all debit card payments that do not fall within the specific auto-adjudicated categories.
Caution: Vendors and plan sponsors should be prepared for mid-year corrective action. Plan amendments, summary revisions, modified claims reimbursement procedures, etc., will need to be considered mid-year at the conclusion of the extended transition period.
Observation: The extended transitional relief is not surprising. Much of the debit card regulations now appear in the proposed cafeteria plan regulations, also originally expected to be finalized and effective January 1, 2009. The proposed cafeteria plan regulations, however, have not yet been finalized. When finalized, the effective date will probably be January 1, 2010.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.