Section 125 Plan Audits

[Guest afreeling]

Good morning,

I was trying to do some research and look for court cases where a Plan Administrator was penalized because they were not running their cafeteria plan correctly (i.e. according to the written plan document and regualtions). Does anyone know of any court cases that would address this? I know that S125 audits are few and far between. Any assistance would be greatly appreciated.

[GBurns]

I have never seen any court cases and doubt that there are any. Such audits and penalties etc would probablly be settled out of court.

A good source to ask would be ant of the large document providers. It would be good sales material. Try MHM.

[LRDG]

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

I don't know if this answers your question, but this particular case was covered in WSJ and a number of other financial publications. It no longer appears in google search, although it did for a long time. Benefitslink search provides few details. I remember the case well. It involved retrospective Sec. 125 elections, IRS penalties and taxes assessed on ER and EE contributions.

My experience is IRS became willing to negotiate under certain circumstances, possibly to be more Corporate friendly. Substantial penalites are typically outlined in IRS notice, but depending on the nature of the violation, if 3rd party administrator failure is involved, how contrite the plan sponsor and their willingness to correct violations, do impact IRS willingness to reduce or in some cases waive penalties. Most Sec. 125 violations result from IRS payroll audits, with the plan sponsor negotiating directly with IRS. These references are dated, late 1990 to early 2000 and not an indication of possible recent settled/negotiated cases.