Missing/No Cafeteria Plan Document

[Guest enelson]

Does anyone know what the consequences would be of an employer implementing a cafeteria plan arrangement without establishing or drafting a written cafeteria plan document? Evidently, the client has been operating a cafeteria plan arrangement for years; however, the written plan document, as required under the Code, cannot be located. Any thoughts would be greatly appreciated. Thanks.

[mbozek]

There is a case involving an insurance co that held that cafeteria plan exclusions are not available before the plan is adopted. But the statute of limitatons for taxing individual employees is only 3 years. I once had a client with the same problem- salary reduction was allowed for a group of employees who were not eligible for a 125 plan. The client adopted a 125 plan for the group as of the date salary reduction commenced. The client was never audited. (125 plans are only subject to random IRS audits). The regs require a written document but not a signed document- any evidence that a plan exists (e.g., board resolution) would be sufficient for adoption in a prior year.

[Kirk Maldonado]

I think that the case is American Family Mutual Ins. Co. v. U.S., DC W Wis. 12/3/92, 16 EBC 1332, 815 F.Supp. 1206.

[Guest bmaverick2]

Also, if the client provides SPDs to the participants, that would be evidence of a written plan.

[E as in ERISA]

The plan document (or lack thereof) is one of the main thing that the IRS examiners are looking for when they audit cafeteria plans.

[g8r]

Are they auditing cafeteria plans? I"ve heard of a couple of situations that arose on a corporate audit where the cafeteria plan was briefly looked at. But, I haven't anything recently about specific audits on cafeteria plans.

[E as in ERISA]

I haven't heard much about them lately. But they are conducted primarily by payroll auditors. And I believe that they started in the Southwest region and then expanded somewhat in recent years.