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125 Plan Documents = ?


Guest David M. Lipkin
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Guest David M. Lipkin

Does anyone have guidance as to whether (and if so, when) these documents need to be restated?

I've seen different answers to this, but nothing definitive. Is it even necessary to restate them?

Any advice w/b appreciated,

thx,

David

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Guest David M. Lipkin

We administer both FSA and POP 125 plans, including 5500's (where needed), approving FSA claims, cutting checks, disc. testing, etc.

Initially, we prepare a plan document (using datair's system, I think.) Several of these documents have been around for many years.

On the retirement plan side, there is obviously a huge effort underway to restate for GUST/EGTRRA, etc.

My questions is whether there is an analogy for 125 plan documents. Are they about to "expire", as retirement plan documents will soon? I realize that 125 plans aren't "qualified", but would it cause problems if the documents were not proprely updated after some point in time? If so, when?

David

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My understanding has always been that restatement applies to pension plans, not fringe benefit plans (125). Periodic amendments may need to be done to include IRS updates which the client wants to add to the plan. For instance, the past couple years have seen many new rules from the IRS concerning flex COBRA, FMLA and mid-year election changes.

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Guest David M. Lipkin

Do you know if there is a firm deadline for these document upgrades? Is there IRS guidance on this?

David

PS - sorry I'm so clueless!

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The most recent update from the IRS for mid-year election changes went into effect 1/1/02. These were the significant cost/coverage changes provisions in 1.125-4. Since 125 plans can legally be written to not allow any mid-year election changes at all, these provisions do not make existing 125 docs obsolete. It just means they should be amended if it is the plan sponsor's intent to allow the new changes. The most recent rules on FMLA went into effect on 1/1/02, as well. The changes modified certain provisions, but did not make any previous rules "illegal." So, again, it's still OK to operate under the old plan doc, it just might not be the intention of the plan sponsor. Because there are no deadlines for amendment, and IRS audits of 125 plans are so rare, plan sponsors put little effort in making sure that their 125 plan docs are written to encompass their intentions.

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