Are you in compliance?
Recent announcements by the IRS and DOL have indicated a “zero tolerance compliance standard” for adherence to required published guidelines. Many employers are routinely ignoring IRS and DOL compliance requirements for properly establishing and maintaining IRS Section 125 plans to deduct insurance premiums, medical and dependent care expenses. If the employer is audited and the plan disqualified, there could be serious repercussions such as 1.) deductions may be disallowed back to inception, 2.) assessment of back taxes with interest, 3.) IRS ‘improper withholding’ penalties and, 4.) daily DOL fines. The employer would then be required to reissue W-2’s for every participant possibly for multiple years and each employee could be faced with a large tax bill. Although these are not inclusive of all requirements, please check below to determine your plan compliance:
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| Yes | No |
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Do you have a written Section §125 Cafeteria Plan document? | q | q |
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Does your plan satisfy the requirements of section 125 and the regulations? | q | q |
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Does your plan operate in accordance with the written plan terms? | q | q |
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Do you distribute a Summary Plan Description or SPD to all employees? | q | q |
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Do you collect annual, signed, salary reduction election forms from all employees? | q | q |
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Do you assume that employees may be automatically enrolled w/o a signed election from? | q | q |
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Do you obtain employees’ written consent before withholding for health plan benefits? | q | q |
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Do you update and maintain your plan document for new IRS provisions and laws? | q | q |
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Do you apply Discrimination Testing annually on the last day of the plan year? | q | q |
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Does your plan violate any prohibited acts? | q | q |
Most common employer’s compliance failures are in the following areas:
- No or improperly executed or Section 125 Plan Document
- No Summary Plan Description distributed to the employees
- Operating a Section 125 plan not according to your plan document – Section 125(d)(1) "The cafeteria plan must operate in accordance with the written plan terms."
- Allowing employees to rollover their elections from one year to the next without obtaining a newly signed election form – Most plans do not allow for automatic rollover of prior year employee elections.
- Not requiring Annual Election Forms from all employees - §1.125-2 – Making, revoking and changing elections – "Generally, a cafeteria plan must require employees to elect annually between taxable benefits and qualified benefits."
As benefits counselors for working Americans, we can help. One thing that sets us apart is our ability and willingness to sit down with each and every one of your employees to help them understand and appreciate what you do for them every day.
Although we are not a TPA (Third Party Administrator), we can offer our assistance to help you in your annual compliance efforts. With a field force of over 3,500 Benefits Enrollment Counselors strong, we can provide the manpower in the field to sit down with your employees to explain the programs and collect a signed Employee Enrollment Election Form from every employee. This also helps ease HR personnel's workload by letting us do the tedious work of explaining the program to each employee and collecting their signature on an Election Form. Even in Spanish.
Our laptop computer generated Employee Election Form contains the necessary qualified Section 125 Salary Redirection Agreement required for annual compliance. This is an employer service we provide along with the enrollment of our voluntary benefit offerings at no charge to the employer.
This is important because according to the proposed IRS guidelines for 2009, there is zero tolerance for employer non-compliance of Section 125 requirements. The proposed rules also do not provide a Section 125 cafeteria plan corrections program.
We would strongly advise you to discuss these issues with your broker and your TPA and/or legal and tax council to determine if you are indeed in compliance or work with one of our preferred TPA vendors.
Please call us if you have any questions or would like to discuss further.
Click here to download the free Section 125 Self Compliance Audit.
Click here to download a copy of our Section 125 compliant Enrollment Election Form with included Salary Redirection Agreement.
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