What Are the Recordkeeping Requirements for Section 125 Plans in 2025?
ASM Pick
Section 125 plans, generally known as cafeteria plans, offer workers the flexibility to choose from a variety ofpre-tax benefits, similar as health insurance, dependent care backing, and flexible spending accounts. These plans give significant tax advantages for both employers and workers, but they come with specific recordkeeping conditions to insure compliance with the Internal Revenue Code and other applicable regulations. In 2025, maintaining proper attestation and clinging to recordkeeping norms is pivotal for the uninterrupted tax- advantaged status of these plans.
1. Necessity of a Written Plan Document
To establish a Section 125 plan, employers must borrow a written plan document that outlines the specific benefits offered, eligibility criteria, election procedures, and other essential details. This document must be streamlined regularly to reflect any changes in the plan or applicable codes. Failure to maintain an over- to- date written plan can result in the loss of the plan's tax- advantaged status, making all benefits employeeed under the plan taxable to workers.
2. Annual Employee choices and Documentation
workers sharing in a Section 125 plan must make periodic choices regarding their benefit selections. These choices should be proved and retained for each plan time. The attestation should include the employee's chosen benefits, the quantum ofpre-tax benefactions, and any other material information. Keeping accurate records of these choices is essential for vindicating compliance during checkups and icing that the plan operates within the guidelines set forth by the IRS.
3. Adherence to Irrevocable Election Rules
Under Section 125, choices made by workers are generally irrevocable for the duration of the plan time. Still, there are specific circumstances under whichmid-year election changes are admissible, similar as changes in family status or employment status. Employers must maintain records of any permitted election changes, including the reason for the change and the date it was made. This attestation is vital for demonstrating compliance with the irrevocable election rules and for substantiating anymid-year changes during checkups.
4. Non-Discrimination Testing and Record conservation
Section 125 plans are subject tonon-discrimination rules to ensure that they do n't disproportionately favor largely compensated workers. Employers must conduct periodicnon-discrimination testing to corroborate compliance with these rules. The results of these tests, along with any corrective conduct taken, should be proved and retained. Proper recordkeeping ofnon-discrimination testing is pivotal for defending the plan's compliance in the event of an IRS inspection.
5. Reporting and Filing Conditions
Employers with Section 125 plans may have reporting scores, similar to filing Form 5500, depending on the size of the plan and its backing arrangements. While decoration-only plans are generally pure from this form demand, other types of cafeteria plans may not be. Employers should assess their specific situation and ensure that all necessary forms are completed directly and timely. Retaining clones of filed forms and related correspondence is important for maintaining compliance records.
6. Attestation of Employer Benefactions
Still, similar to benefactions to health savings accounts or flexible spending accounts, employers must maintain records of these benefactions, If the Section 125 plan includes employer benefactions. Attestation should include the quantum of each contribution, the date it was made, and the philanthropist's employee. Accurate records of employer benefactions are necessary for vindicating compliance with contribution limits and for substantiating the plan's operations during checkups.
7. Retention of Plan Documents and emendations
Employers must retain clones of the original plan document and any amendments made to it over time. These documents should be readily accessible and systematized to grease review during checkups or compliance checks. Retention of plan documents and amendments ensures that employers can demonstrate the plan's elaboration and compliance with changing codes and regulations.
8. Employee Access to Plan Information
workers have the right to pierce information about their Section 125 plan, including details about the benefits offered, election procedures, and any changes to the plan. Employers should maintain a system for furnishing workers with timely access to this information, whether through published accoutrements , electronic doors, or other means. icing that workers have access to plan information supports translucency and compliance with exposure conditions.
9. Compliance with ERISA and Other Regulations
In addition to the conditions set forth by the IRS, Section 125 plans must also misbehave with other applicable regulations, similar as the Employee Retirement Income Security Act( ERISA). This includes maintaining a summary plan description, furnishing needed notices to actors, and clinging to fiduciary liabilities. Employers should ensure that their recordkeeping practices align with all applicable regulations to avoid implicit penalties and legal issues.
10. Significance of Regular checkups and Reviews
Regular checkups and reviews of the Section 125 plan's operations and recordkeeping practices are essential for relating and addressing implicit compliance issues. Employers should conduct internal checkups periodically and consider engaging external adjudicators to assess the plan's adherence to legal and nonsupervisory conditions. Regular reviews help ensure that the plan remains in good standing and that any necessary corrections are made instantly.
Conclusion
In 2025, employers offering Section 125 plans must cleave to strict recordkeeping conditions to maintain the tax- advantaged status of these plans. Proper attestation of plan documents, employee choices,non-discrimination testing, employer benefactions, and compliance with ERISA and other regulations is essential. Regular checkups and reviews further support ongoing compliance. By maintaining comprehensive and systematized records, employers can insure the uninterrupted success and legitimacy of their Section 125 plans, thereby enhancing their employee benefits package and fostering a biddable and transparent plan.
