by Ric Joyner, CEBS, GBA, CFCI
CEO, eflexgroup.com
Madison, WI
rj@eflexgroup.com
The sickening sweet ringtone of my new desk phone startled me from my paper. I noticed the
caller ID displayed the number of one of our long-term clients.
“Morning, Jo,” I said.
“Ric, the IRS is here and they need a copy of all of our 5500s. Do you have them?”
“Sure do,” I confirmed. I hung up and started in motion the retrieval from the archives. I
waited by the phone for the next inevitable call. Ten minutes went by and the ring started again.
“Hi, Jo. He is asking for the plan document, right?”
“Yes,” she said, surprised. I then said that the agent would be seeking the non-discrimination
testing methodology, but I told her to wait until he asked for it. She laughed and hung up.
Her call for the discrimination testing came a day later. I inquired the reason the IRS was
there, and she said they were doing a general audit of the taxes and wanted the flex and retirement information too.
I sat down after that call and penned this article. It is to remind us of the small compliance
items that are important. Leaving this to experts is crucial, however, remember what Ronald
Reagan said: “Trust, but verify.” Here are the focus points for your “verification”:
✔ Plan documents. The new cafeteria plan rules emphasize the requirement to maintain plan documents.
If your document is more than two years old, I suggest a review and update.
✔ Corporate Resolution with the plan documents.
The corporate resolution is a formal authorization by
the officers of the corporation to begin a cafeteria
plan. If this step was left out in the process of creating
the cafeteria plan, the IRS view is that a cafeteria plan
was never started.
✔ Non-discrimination testing. This is required on
cafeteria plans in several areas.
• The concentration test determines the key (owners)
and highly compensated employees (HCEs) do not
comprise more than 25% of the contributions.
Premium-only plans (employee portion of the premiums pre-tax) routinely fail this test.
• The contributions test is to determine that key and
HCEs are not getting the majority of contributions, and that employees are treated fairly.
• The eligibility test is to determine employee treatment is fair for entry into the plan.
• Dependent care has two tests—the concentration
test and the 55% averaging test. The averaging test
is a tough to pass for a small company.
Prominent attorneys, such as Ashley Gillihan of Alston
Bird in Atlanta, have stated that the IRS will require the
