Deadline Approaching to Amend Cafeteria Plan Documents

Employee Benefits Alert

As most employers are already aware, the Patient Protection and Affordable Care Act ("PPACA") enacted a provision that, in part, restricted employer health flexible spending arrangements ("Health FSAs") and health reimbursement arrangements ("HRAs") from paying or reimbursing amounts expended for over-the-counter medicines or drugs (except insulin) purchased without a prescription, effective January 1, 2011. In other words, since January 1, 2011, employers' Health FSAs and HRAs have been prohibited from paying or reimbursing expenses for medicines or drugs, other than (1) prescription drugs, (2) insulin, or (3) over-the-counter medicines or drugs that are actually prescribed by a physician. (Of course, to simplify administration, an employer could choose to not have its Health FSA or HRA cover any expenses incurred for over-the-counter medicines or drugs.) The IRS has also provided special rules regarding the types of transactions (and related substantiation requirements) for which prescribed over-the-counter drugs may or may not be purchased using a health FSA or HRA debit card, effective January 16, 2011.

In order to ensure its compliance with the new restrictions, an employer may need to amend its Health FSA and/or HRA plan documents. Although the restrictions are already in effect -- and have been since January 1, 2011 -- the IRS previously announced that any implementing cafeteria plan amendments generally could be adopted by as late as June 30, 2011, as long as the amendments were effective retroactively to apply to expenses incurred on or after January 1, 2011 (or January 16, 2011, with respect to the special rules for Health FSA and HRA debit card purchases). This is true notwithstanding the general rule that cafeteria plan amendments may be effective only prospectively.

Many employers already adopted the necessary plan amendments at or near the end of the 2010 calendar year, to ensure that their plans were in operational compliance with the new restrictions. However, for any employers that have not yet done so, we wanted to make sure you were aware that the deadline to adopt these plan amendments is rapidly approaching.

For more information, please contact:

Garrett Fenton,, 202-626-5562

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