PEO's and Cafeteria Plans

[SLuskin]

There is a PEO with 6 (so far) client employers. the PEO sponsors a multiple employer Cafeteria Plan with the Flexible Benefits options. It allows the co-employers to opt out of the flex and only offer the POP option to its leased employees. How can they do this, if all benefits are supposed to be reasonably available to all employees? Can each co-employer choose its own cap for the medical reimbursement?

[Guest inslady]

I have two PEO's as clients. One has a multiple employer plan and all clients have all benefits offered. No exceptions. The other has chosen to have separate plans for each client and benefits are different. It took some research, but we discovered that the IRS recently decided to allow cafeteria plans to be established either way.

[SLuskin]

Thank you. Do you have a site or reference that I could go to for this? This whole PEO thing is confusing to me, and I would love to read an IRS opinion.

[Guest inslady]

PEO's seem to be confusing to everyone -- including the IRS! I don't have a site for you to go to. What I know I've learned by researching all over the place and using the resources of my company who handles Sec 125 and works with many PEO's. Good luck!

[Guest msearle]

Question concerning the PEO: Does the PEO provide payroll services, workers comp insurance, etc? If it does, does it provide the services under a co-employer relationship? If it can be proved that a legitimate co-employer relationship exists, could the PEO use a single employer cafeteria plan?

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[Guest inslady]

My largest client is a PEO that does provide workers comp and all payroll services. They function as a single-employer plan. There are difficulties with this as the IRS has advised them that each client can maintain their own group medical plan. Each employer selects their own eligibility period for the benefits they provide -- but the 125 plan has a universal eligibility period of 30 days. So new employees have to sign up for the 125 plan prior to knowing what they are going to do for the other benefits. This makes it difficult to administer and control.

[GBurns]

To inslady.... usually when someone find out something , such as that the IRS allows something, there is a cite or reference, otherwise it is "gossip". Can you tell us where and what this finding out that the IRS allows this sort of thing is ?

[Guest inslady]

Sorry, chalk my comment up as being new and not knowing all your rules. I'll see what I can come up with on hard facts.

[Lisa Hand]

inslady:

Gburns was requesting clarification not dictating rules to you. This work group is open to all regardless of their experience and often we can help each other locate sources and regulations. Please email me directly if you have any other questions.

[GBurns]

Thanks ..Lisa.

Inslady.. one of the major problems I see and hear of is the public perception that anything they see on the internet or www is true. People read comments and take action as if the comment was "god sent". Without the cite etc the info is unverifiable. I apologize if I sounded harsh. You should see my caseload of IRS disputes correspondence and court cases caused by situations such as this.

[Guest inslady]

No problem GBurns. I wasn't taking your comments as "dictating" -- only sometimes "newbies" don't always understand protocol. I've been looking for cites, rules, etc. and can not find anything that is hard evidence. What I do know is both of my clients have recently gone through extensive audits and both have been advised by the IRS that the way they are setting up cafeteria plan is valid. So you have two almost identical companies conducing business in two completely separate ways -- and both tell me they are "legal". My best advice -- at this point -- is to contact NAPEO.org and get their take on the matter. Thanks!

[Guest cmpeery]

Although the NAPEO is a valuable resource, even they don't realize the inconsistencies in the relationships that can be established between a PEO and its "clients." You have to actually look at the service agreement they have with the client to see whether a multi-employer plan is appropriate or different plans for each client. The answer can actually be different for various clients within the same PEO.

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C.M.Peery