History
Cafeteria Plans were added to the Internal Revenue Code in November 1978. Internal Revenue Code Section 125 sets forth the requirements and tax treatment of cafeteria plans. Section 125 has been amended multiple times since its enactment.
In May 2005, the Treasury Department and the Internal Revenue Service announced that effective immediately, employers would be permitted to design cafeteria plans that enable participants to be reimbursed for claims incurred up to 2½ months after the close of a plan year. Prior to this notice, reimbursements were permitted only for claims incurred during the plan year. Under the new ruling, an employee who participates in a Flexible Spending Account plan ending December 31 can still receive reimbursement for claims incurred through March 15 if the extended grace period is adopted by the employer.
Since the :use it or lose it" fear of many employees was reduced significantly by the expanded claims reimbursement cycle, and access to funds can now be better targeted for purchases that the employee actually needs, there has been a clear increase in both the percentage of employees opting to participate in a Flex Plan and in the level of annual elections, enhancing FICA savings for employees and employers alike.
Read more about this topic: Cafeteria Plan
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