Accurate and thorough reporting and nondiscrimination testing are critical components for benefit plans. Done right, and it can be smooth sailing. Done wrong, and you can end up with unwelcome taxable income.
A law firm was having trouble passing their year-end nondiscrimination testing for their cafeteria plan. When their administrator told them that they had failed the test, the firm’s shareholders were faced with a combined six-figure tax liability.
It turns out, the administrator had used a system-generated test which doesn’t show alternatives for passing. This is where our extensive experience came into play.
We were already familiar with the available options. We then reached out to an ERISA attorney we work with for additional insight. In the end, our client was able to pass the test using IRS-approved alternatives and had a $0 tax liability.