In August, the Internal Revenue Service issued proposed regulations governing the operation of cafeteria plans under section 125 of the Internal Revenue Code of 1986, as amended (the “Code”). These incorporate guidance issued since the prior proposed regulations, reflect changes in the law, and expand on issues not previously addressed. The regulations finalized in 2001 with respect to permissible cafeteria plan election changes and the Family Medical Leave Act remain unchanged. The proposed regulations are generally effective for plan years beginning on or after January 1, 2009, but employers can rely upon the proposed rules until final rules are issued.

This material is not intended to constitute a complete analysis of all tax considerations. Internal Revenue Service regulations generally provide that, for the purpose of avoiding United States federal tax penalties, a taxpayer may rely only on formal written opinions meeting specific regulatory requirements. This material does not meet those requirements. Accordingly, this material was not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal or other tax penalties or of promoting, marketing or recommending to another party any tax-related matters.