As part
of the final IRS Section 125 legislation, plan sponsors can expect
to see increased IRS audit activity. Seven areas of scrutiny are
detailed below, and ODI suggests solutions to provide the good
faith effort needed to bring things back into compliance:
ONE:
Failure to File IRS Form 5500, including all schedules
(i.e. A, C, and/or F).
ODI'S SUGGESTED SOLUTION: File as far back as
failures go, along with a statement of reasonable cause for the
failure to file. ODI can prepare all delinquent IRS Forms 5500
along with an appropriate reasonable cause letter.
TWO: Not having a plan document or a current plan
document.
ODI'S SUGGESTED SOLUTION: Draft a document so that
it conforms as closely as possible to what was done in the past
and what is currently being done. Include descriptions of eligibility
requirements, covered benefits, etc. If a plan document currently
exists, review the document and make certain it conforms to the
most recent IRS legislation such as FMLA and the new change in family
status rules. ODI can prepare a plan document on your behalf or
review an existing document for compliance.
THREE: Not having a summary plan description (SPD)
or a current SPD and not providing each eligible employee with a
copy.
ODI'S SUGGESTED SOLUTION: Draft an SPD so that
it conforms as closely as possible to what was done in the past
and what is currently being done. Include descriptions of eligibility
requirements, covered benefits, etc. If an SPD currently exists,
review it and make certain it conforms to the most recent IRS legislation
such as FMLA and the new change in family status rules. Also, provide
every eligible employee with a copy. ODI can prepare an SPD on your
behalf or review an existing SPD for compliance.
FOUR: Making operational and clerical errors such
as improper approval of change in family status requests, improper
FSA claims reimbursements, etc.
ODI'S SUGGESTED SOLUTION: Take corrective action
and establish internal procedures to avoid inconsistencies in operational
practices.
ODI provides full auditing services in order to review operational
and clerical procedures for accuracy.
FIVE:
Not doing nondiscrimination testing (examples: 25% Key-employee
Test, 55% HCE Average Benefits Test, etc.)
ODI'S SUGGESTED SOLUTION: Immediately test for
nondiscrimination and take any corrective action necessary (example:
reducing Key employee pretax contributions). Establish an ongoing
schedule for routine testing. ODI provides full nondiscrimination
testing services and suggests procedures for future testing.
SIX:
Putting non-employees (examples: partners in a partnership,
2% or more share-holder employees in a sub-chapter “S”
corporation, etc.) in the plan.
ODI'S SUGGESTED SOLUTION: Remove non-employees from the
plan, make sure the plan document contains the appropriate language
regarding these non-eligible individuals, and “sin no more.”
ODI can help employers correct the problem and prepare the necessary
plan document language for proper compliance.
SEVEN:
Misusing unused FSA contributions, also known as forfeitures
(example: allowing FSA participants to use the excess funds for
general, non-plan related employer expenses).
ODI'S SUGGESTED SOLUTION: Review the approved
IRS regulations on FSA forfeitures and initiate supporting procedures.
ODI can provide computer generated illustrations for all approved
IRS FSA forfeiture options and avoid the potential errors resulting
from manual calculation.
ODI
URGES PLAN SPONSORS TO TAKE CORRECTIVE ACTION NOW
Remember, the window of opportunity to take corrective action
may close shortly. The IRS has indicated they will not attempt
to penalize plan sponsors for past mistakes that can be reasonably
explained and are in the process of being corrected.
AN
UNBLEMISHED RECORD OF COMPLIANCE AND SUPPORT
For Existing ODI Clients: No plan sponsors have ever been penalized
for non-compliance.
For New Clients: ODI
has been providing plan sponsors compliance guidance for over
4 years and has an unblemished record in obtaining IRS waivers
for penalties resulting from non-compliant plans.