June 25, 2008


Effective immediately, a new federal law, called the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act), requires action to be taken by sponsors of qualified retirement plans and permits action to be taken by sponsors of Cafeteria Plans (or Section 125 Plans) with a health flexible spending arrangement.  Two of the changes made by the HEART Act are summarized below. 

  • Qualified Retirement Plans – The HEART Act requires sponsors to amend their qualified retirement plans to provide additional benefits to survivors of participants who die while performing qualified military service.   For example, if a retirement plan provides that a participant will become fully vested upon his or her death while actively employed by the sponsor, then the retirement plan must now provide that the participant’s benefit will become fully vested if he or she dies while performing qualified military service.  The effect is that the participant’s survivors will receive a bigger benefit than they would have before the HEART Act was passed.  How the change affects a retirement plan will differ for each retirement plan.  Amendments to the formal retirement plan document and corresponding summary plan description will be required.
  • Cafeteria Plans / Flexible Spending Arrangements – The HEART Act permits (but does not require) sponsors of Cafeteria Plans with a health flexible spending arrangement to allow participants who are called to active duty to take distributions of the unused balance in their health flexible spending arrangements.  Ordinarily, the use-it or lose-it rule requires participants to forfeit the unused balances of their health flexible spending arrangements if they do not incur eligible medical expenses during the year.  Now, participants called to active duty may take a distribution of their unused balance to avoid forever losing the contributions.     

Since the HEART Act is effective immediately, it is important that you consult with the professional responsible for your qualified retirement plans and flexible spending arrangements. You also may contact us for more information on how the HEART Act impacts your employee benefit plans and for assistance in revising the qualified retirement plans and flexible spending arrangements sponsored by your company. 


Employee Benefits Law Group: The  Employee Benefits Law Group at Tucker Arensberg, P.C. has a diverse client base of private and public employers.  We are dedicated to working with our clients to resolve complicated legal issues in a practical, common-sense and cost-efficient manner.  In doing so, we routinely work with our clients to design, establish, implement, administer, and terminate many different types of employee benefit plans. Refer to http://www.tuckerlaw.com/practice/employee.html for more information on the Employee Benefits Law Group.

TAX ADVICE DISCLAIMER: Any federal tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein. If you would like such advice, please contact us