Lack of documentation for Cafeteria Plan

[Guest bjg]

In an acquisition where a target company ("Target") maintains a cafeteria plan, what is Acquirer's potential liability if Acquirier assumes liability for the plan and the Target cannot produce documentation for the cafeteria plan. It is my understanding that there is no VCR or CAP-type program with respect to Cafeteria Plans, and even if there were, what application with respect to a plan with no documentation?

[Guest bswift]

bjg - i think you're right. there is no correction procedure for cafeteria plans and the no document issue is a problem. the regulations specifically require that the cafeteria plan be in writing and the irs would likely take the position - no document, no tax benefits. the result is that employees have income in prior year and the employer has exposure for withholding taxes. good luck.

[Lisa Hand]

Can the aquired company produce Form 5500's for the years the plan has been in place? If not, that is another large (larger) problem. Was a plan service provider used by the aquired company and if so has an inquiry gone to them for document copies. Plan service providers should maintain file copies of all documents and may have other helpful records. If not, an inquiry to their CPA, lawyer, ect might be helpful. Does any corporate resolution exist in the corporate records? Sometimes docs are missplaced, these are some ideas for finding them.