Outsourcing Internal Revenue Service (IRS) Section 125 compliance through a professional service means leaving IRS requirements in the hands of those who understand them best. Even if you have to spend some, a team with extensive experience and knowledge of Section 125 plans and ERISA provisions would help make your business cost-effective because then you wouldn’t have to worry about keeping track of updates in the IRS Code and instead concentrate on having an efficient business operation.
How To Know Your Plan is in Compliance?
If you’re among those employers who have in fact, established a Section 125 Cafeteria plan, and then promptly forgot about it, it’s high time to take the plan document out from wherever it has been gathering dust.
The IRS has recently issued a directive reminding companies to take compliance requirements seriously. There are many points wherein your plan may be deemed as not in compliance. One is when not all participating employees are eligible as per provisions in the document.
Another is when the benefits being offered to or availed by employees are not included in the Section 125 Plan document. The bottom line is, the cafeteria plan utilized in the organization should be in accordance to what is specifically stated in the documentation.
Another area where a cafeteria plan may be rendered as outdated or not in compliance by the IRS is in nondiscrimination testing. The IRS essentially frowns on Section 125 plans that favor the company’s top officers, highly-paid employees, and shareholder employees in terms of eligibility, contributions, and benefits.
To ensure that a company is adhering to the tax code’s policies on nondiscrimination, a plan document is required to undergo testing every end of the year.