IRS Notice 2005-42-Core Documents offers $19.95 Plan Document Amendment Language to Extend Claims Reimbursements to 14 1/2 Months for Section 125 FSA Plans

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In a surprise move, the IRS announced a revision to the "use-it-or-lose-it-rule" for Section 125 healthcare and dependent care flexible spending accounts (FSA). At the employer's option, the cafeteria plan may be amended to allow for a 2 1/2 month grace period after the end of the plan year, during which time the participants may still incur expenses and claim reimbursement from any unused balance in their FSA accounts.

Core Documents Inc., a nationwide leader in providing low cost IRS and DOL compliant Plan Documents for Section 125, POP, FSA, HSA and HRA Plans since 1997, has developed a $19.95 plan amendment for employers who need to amend their Section 125 Cafeteria plan documents to allow the new 2 1/2 month extension for healthcare and dependent care FSA claims. You can access more information and an amendment order form at

Before IRS Notice 2005-42, Section 125 FSAs required that employees incur all eligible expenses before the last day of the plan year in order to be eligible for reimbursement. This was because Section 125 of the Internal Revenue Code disallowed benefits that resulted in deferred compensation for employees.

IRS Notice 2005-42 modified the rule that prohibited deferred compensation in Section 125 FSA plans. At the employer's option, their Section 125 plan with either a healthcare FSA, dependent care FSA, or both, can be amended to include this new 2 1/2 month extension.

In order to offer the new grace period for a Section 125 plan year, the employer must amend their plan documents by the end of that plan year. For 2005 calendar years the plan documents must be amended by December 31, 2005, to add the grace period extending the claims deadline to March 15, 2005.

See more information about Section 125 Plans, Flexible Spending Accounts for healthcare expenses and dependent care expenses, Section 132 Transit benefit plans, Health Savings Accounts or HSA plans, and Section 105 Health Reimbursement Arrangements or HRA plans, at the Core Documents Website:


Gene Ennis



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