June 30 Deadline to Amend §125 Cafeteria Plans

June 03, 2011

June 30, 2011 is the deadline to amend §125 cafeteria plans to preclude tax-free reimbursements for over-the-counter (OTC) medicines and drugs purchased without a prescription. As part of the health care reform law, tax-free reimbursements for OTC medicines and drugs without a prescription, other than insulin, were eliminated as a permissible benefit under §125 cafeteria plans, health savings accounts, and Archer medical savings accounts, effective as of January 1, 2011.

Many cafeteria plan documents specifically provide for the reimbursement of OTC medicines and drugs purchased without a prescription. The IRS ordinarily does not permit cafeteria plan documents to be amended retroactively. The IRS in this case, however, is allowing amendments to cafeteria plan documents in order to comply with the requirements of the health care reform law eliminating tax-free OTC medicine and drug reimbursements without a prescription to apply retroactively to the January effective date if the amendment is adopted on or before June 30, 2011.

If you have a cafeteria plan service provider and you have not yet heard from that service provider about this amendment to your plan documents or if you simply are unsure of the status of this amendment with respect to your cafeteria plan, you should contact your service provider immediately.

If you do not have a cafeteria plan service provider, are uncertain about who provided you with your cafeteria plan documents, or simply want assistance in ensuring your plan's compliance with this new rule (or any other aspect of health care reform), please feel free to contact Ed Feibel at 1-800-564-0111.

This alert is provided as general information, and is not a substitute for legal or other professional advice.