July 9, 2008

“HEROES Act” Signed into Law

On June 17, 2008, President Bush signed theHeroes Earnings Assistance and Relief Tax Act of 2008 (“Heroes Act”, Public Law 110-245), highlighted in last month’sBenefit Beat.  This law, among other things:

  • Extends the federal mental health parity provisions through December 31, 2008.
  • Permits a flexible medical spending account to be amended to allow a cash-out of ununsed account balances prior to the end of the plan year in which the call to military service occurs, as long as the call to active military duty exceeds 180 days.
  • Allows several retirement plan enhancements for individuals called to military service.  Among these are:
    • Any qualified plan survivor benefit would be made available in the event a death occurs during a military leave.  A qualified plan could be amended to allow a deemed benefit accrual in the event of death or disability during military leave.  The affected individual would be deemed to be rehired prior to the date of death or disability.
    • Differential pay would be considered compensation for qualified plan purposes, as well as for income tax withholding purposes. 
    • A plan could allow an individual called to military service, for at least 30 days, to take a distribution of elective deferrals from a 401(k) plan.  The individual would be prohibited from making new contributions for six months following the distribution.  The 10% early distribution penalty, temporarily waived following 9/11, would be permanently waived for individuals called to military service.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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