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What CuseFan is saying what I have always heard from the attorney's I know. Your decisions don't have to always be right. You just have to document they were reasonable at the time. So if you have a good investment policy and stick to it I would suspect it will be hard to lose one of these cases.

section 1.401(k)-1(b)(4)(iii)(B) last sentence Similarly, an employer may not aggregate a plan (within the meaning of section 1.410(b)-7(b) using the ADP safe harbor provision of section 401(k)(12) and another plan using the ADP test of section 401(k)(3). or if Willy Wonka rewrote the regs about trying to combineg a safe harbor with a non-safe harbor plan Wonka: [angrily] Wrong, sir! Wrong! Under section 37B of the contract signed by him, it states quite clearly that all offers shall become null and void if - and you can read it for yourself in this photostatic copy - "I, the undersigned, shall forfeit all rights, privileges, and licenses herein and herein contained," et cetera, et cetera... "Fax mentis, incendium gloria cultum," et cetera, et cetera... Memo bis punitor delicatum! It's all there! Black and white, clear as crystal! You have one safe harbor plan and another non-safe harbor plan., so you get... NOTHING combined!!! You lose! GOOD DAY, SIR! [returns to work]

Nicely crafted. Although you can pay life and disability insurance with pre-tax dollars, I don't believe you would want to because that would make any benefits paid under those policies taxable (unless under the $50k coverage exclusion for ER provided GTL). There are administrative costs with a cafeteria plan, so the message to the employer can't be pure payroll tax savings. Having a cafeteria plan may be an advantage - or disadvantage not having one - when trying to attract and retain employees, especially for a small business and even more so if the small business does not offer a retirement/401(k) plan. If you can point to local competing employers who may have these plans, that could help as well. You should also research and present the tax savings that could be available to the owners on their own benefits under the arrangement, rather than reference "special rules" - if you can demonstrate that they can save both at the business and personal level you have a stronger case. Good luck