Fair FSAs Act of 2020

II 116TH CONGRESS 2D SESSION S. 4371 To amend the Internal Revenue Code of 1986 to require employers to cash out the flexible spending accounts of employees who separate from em- ployment, and for other purposes. IN THE SENATE OF THE UNITED STATES JULY 30, 2020 Ms. SMITH (for herself and Ms. SINEMA) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to require employers to cash out the flexible spending accounts of employees who separate from employment, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Fair FSAs Act of 4 2020’’. 5 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 4371 IS SEC. 2. CASH-OUTS OF FLEXIBLE SPENDING ACCOUNTS. 1 (a) IN GENERAL.—Subsection (h) of section 125 of 2 the Internal Revenue Code of 1986 is amended to read 3 as follows: 4 ‘‘(h) SPECIAL RULES FOR UNUSED BENEFITS IN 5 HEALTH FLEXIBLE SPENDING ARRANGEMENTS.— 6 ‘‘(1) DISTRIBUTIONS UPON TERMINATION OF 7 EMPLOYMENT.— 8 ‘‘(A) IN GENERAL.—If a benefit is pro- 9 vided under a cafeteria plan through employer 10 contributions to a health flexible spending ar- 11 rangement— 12 ‘‘(i) such plan or arrangement shall 13 not fail to be treated as a cafeteria plan or 14 health flexible spending arrangement (and 15 shall not fail to be treated as an accident 16 or health plan) for purposes of this title 17 merely because such arrangement provides 18 for an election meeting the requirements of 19 subparagraph (B), and 20 ‘‘(ii) such benefit shall not be treated 21 as a qualified benefit for purposes of this 22 section unless such arrangement provides 23 for such election. 24 ‘‘(B) ELECTION.—The requirements of 25 this subparagraph are met if the health flexible 26 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 4371 IS spending arrangement provides that, if the em- 1 ployee terminates employment with the em- 2 ployer (whether voluntarily or involuntarily) 3 during the plan year, the employee may elect to 4 receive in cash an amount equal to— 5 ‘‘(i) the excess, if any, of— 6 ‘‘(I) all contributions made to the 7 arrangement for such plan year as of 8 the date the employee terminates em- 9 ployment with the employer, over 10 ‘‘(II) the amount of reimburse- 11 ments received by the employee under 12 such arrangement during such plan 13 year as of the date the employee 14 ceases to be a participant in the ar- 15 rangement (including any grace pe- 16 riod), reduced by 17 ‘‘(ii) the amount of tax withheld 18 under subparagraph (C). 19 ‘‘(C) DEDUCTION OF TAX.—In paying to 20 an employee the cash payment elected under 21 subparagraph (B), the employer shall deduct 22 and withhold from the employee an amount 23 equal to— 24 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 4371 IS ‘‘(i) the taxes which the employer 1 would have been required to deduct and 2 withhold if the employee had received the 3 equivalent amount of wages instead of hav- 4 ing made salary reduction contributions to 5 the health flexible spending arrangement, 6 and 7 ‘‘(ii) in the case of a cash payment of 8 any employer contributions to the health 9 flexible spending arrangement, the taxes 10 which the employer would have been re- 11 quired to deduct and withhold if the em- 12 ployee had received the equivalent amount 13 of wages in lieu of such contributions, 14 determined as if the employee had received such 15 wages on the date the cash payment is made. 16 The amount of tax so deducted and withheld 17 shall be remitted by the employer in the same 18 manner as amounts collected under section 19 3102. 20 ‘‘(2) QUALIFIED RESERVIST DISTRIBUTIONS.— 21 ‘‘(A) IN GENERAL.—For purposes of this 22 title, a plan or other arrangement shall not fail 23 to be treated as a cafeteria plan or health flexi- 24 ble spending arrangement (and shall not fail to 25 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 4371 IS be treated as an accident or health plan) merely 1 because such arrangement provides for qualified 2 reservist distributions. 3 ‘‘(B) QUALIFIED RESERVIST DISTRIBU- 4 TION.—For purposes of this paragraph, the 5 term ‘qualified reservist distribution’ means any 6 distribution to an individual of all or a portion 7 of the balance in the employee’s account under 8 such arrangement if— 9 ‘‘(i) such individual was (by reason of 10 being a member of a reserve component 11 (as defined in section 101 of title 37, 12 United States Code)) ordered or called to 13 active duty for a period in excess of 179 14 days or for an indefinite period, and 15 ‘‘(ii) such distribution is made during 16 the period beginning on the date of such 17 order or call and ending on the last date 18 that reimbursements could otherwise be 19 made under such arrangement for the plan 20 year which includes the date of such order 21 or call.’’. 22 (b) TREATMENT AS ACCIDENT OR HEALTH PLAN.— 23 Section 106 of the Internal Revenue Code of 1986 is 24 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 4371 IS amended by adding at the end the following new sub- 1 section: 2 ‘‘(h) DISTRIBUTIONS UPON TERMINATION OF EM- 3 PLOYMENT.—A plan shall not fail to be treated as a health 4 flexible spending arrangement under this section or sec- 5 tion 105 merely because such plan provides for an election 6 meeting the requirements of section 125(h)(1)(B).’’. 7 (c) EXCISE TAX ON FAILURE TO PROVIDE DIS- 8 TRIBUTIONS UPON TERMINATION OF EMPLOYMENT.— 9 (1) IN GENERAL.—Chapter 43 of the Internal 10 Revenue Code of 1986 is amended by inserting after 11 section 4980 the following new section: 12 ‘‘SEC. 4980A. FAILURE TO PROVIDE DISTRIBUTIONS FROM 13 HEALTH FLEXIBLE SPENDING ARRANGE- 14 MENTS UPON TERMINATION OF EMPLOY- 15 MENT. 16 ‘‘(a) GENERAL RULE.—There is hereby imposed a 17 tax on the failure of a covered cafeteria plan to meet the 18 requirements of section 125(h)(1) (including a failure to 19 withhold and remit any tax as required by subparagraph 20 (C) thereof) with respect to any employee. 21 ‘‘(b) AMOUNT OF TAX.— 22 ‘‘(1) IN GENERAL.—The amount of the tax im- 23 posed by subsection (a) on any failure with respect 24 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 4371 IS to an employee shall be $100 for each day in the 1 noncompliance period with respect to such failure. 2 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes 3 of this section, the term ‘noncompliance period’ 4 means, with respect to any failure, the period— 5 ‘‘(A) beginning on the date such failure 6 first occurs, and 7 ‘‘(B) ending on the earlier of— 8 ‘‘(i) the date such failure is corrected, 9 or 10 ‘‘(ii) the date which is 6 months after 11 the date the employee terminates employ- 12 ment with the employer. 13 ‘‘(3) LIMITATIONS.—Rules similar to the rules 14 of subsections (b)(3) and (c) of section 4980B shall 15 apply with respect to the tax under this section. 16 ‘‘(c) COVERED CAFETERIA PLAN.—For purposes of 17 this section, the term ‘covered cafeteria plan’ means a caf- 18 eteria plan (as defined in section 125(d)) under which a 19 benefit is provided through employer contributions to a 20 health flexible spending arrangement. 21 ‘‘(d) LIABILITY FOR TAX.—Rules similar to the rules 22 of section 4980B(e) shall apply for purposes of deter- 23 mining liability for the tax imposed under this section.’’. 24 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 4371 IS (2) CLERICAL AMENDMENT.—The table of sec- 1 tions for chapter 43 of such Code is amended by in- 2 serting after the item relating to section 4980 the 3 following new item: 4 ‘‘Sec. 4980A. Failure to provide distributions from health flexible spending ar- rangements upon termination of employment.’’. (d) EFFECTIVE DATE.— 5 (1) IN GENERAL.—The amendments made by 6 this section shall apply to plan years beginning after 7 the date of the enactment of this Act. 8 (2) PLAN AMENDMENTS.—A plan or arrange- 9 ment shall not be treated as violating the require- 10 ments of section 125(h)(1) of the Internal Revenue 11 Code of 1986, as added by this section (including for 12 purposes of section 4980A of such Code, as so 13 added), if— 14 (A) the plan or arrangement is amended to 15 meet such requirements on or before the last 16 day of the first plan year beginning after the 17 date of the enactment of this Act, 18 (B) such amendment applies retroactively 19 to the first day of such first plan year, and 20 (C) the plan or arrangement operates in 21 accordance with such requirements as of the 22 first day of such first plan year. 23 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 4371 IS A plan or arrangement shall not be treated as failing 1 to satisfy any requirement of the Internal Revenue 2 Code of 1986 merely because the plan or arrange- 3 ment operates as provided in subparagraph (C). 4 SEC. 3. EXTENSION OF TIME FOR FILING FSA CLAIMS. 5 (a) IN GENERAL.—Notwithstanding any applicable 6 rule or regulation under section 125 of the Internal Rev- 7 enue Code of 1986, a plan or other arrangement shall not 8 fail to be treated as a cafeteria plan or health flexible 9 spending arrangement merely because such arrangement 10 permits participants who make the certification under sub- 11 section (b) to carry over any amount of unused benefit 12 or contribution (without limitation) from any plan year be- 13 ginning or ending in 2020 to the subsequent plan year. 14 (b) CERTIFICATION BY EMPLOYEE.—In applying for 15 any carryover permitted pursuant to subsection (a), the 16 employee shall certify that the amount to be carried over 17 is attributable to a reduction in expected elective health 18 care expenses in the plan year due to the outbreak of 19 coronavirus disease 2019 (COVID–19) in the United 20 States. 21 (c) DEFINITIONS.—Any term used in this section 22 which is also used in section 106 or 125 of the Internal 23 Revenue Code of 1986 or the rules or regulations there- 24 VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 4371 IS under shall have the same meaning as when used in such 1 section or regulations. 2 Æ VerDate Sep 11 2014 20:11 Aug 13, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6301 E:\BILLS\S4371.IS S4371 pamtmann on DSKBC07HB2PROD with BILLS