To comply means to complete and perform what is due. In the "Information Age" there is more data to process and therefore more requirements with which to "comply." More information results in a more informed society, which also spurs the growth of litigation. Out of litigation grows a greater need for society to complete and perform what is due.

Every business in every industry has standards of performance and conduct. Those standards are being more rigidly enforced today. Society requires these standards. We all have observed them mature. We may not always agree with the requirements, but nevertheless we have seen the changes, from emissions controls, seat belts, and strip mining to "Cafeteria Plans." Cafeteria Plans? What is a "Cafeteria Plan?"

Cafeteria Plans allow businesses to let employees select from a menu of voluntary "qualified benefits" and pay for them with pre-tax dollars, saving both the employer and the employee tax dollars. It isn't any wonder that this is a growth industry. Congress approved Cafeteria Plans in 1977 under Section 125 of the Internal Revenue Code. The Internal Revenue Service regulates these plans. In the early years after the law was approved, when businesses were first beginning to implement the plans, rulings had to be issued on the law to clear-up areas of ambiguity. Along the way, a variety of abuses were identified. Those businesses that were not in "compliance" were levied penalties. This represents a source of revenue for the Internal Revenue Service.

Compliance of Cafeteria Plans is not rocket science, but there are many pieces and parts to them, and the requirements must be adhered to on an ongoing basis. Infractions come in two varieties, major and minor. A major infraction might be the failure to file a tax return for the plan on a timely basis. A minor infraction might be a failure to have employees who are waiving out of the plan to sign a waiver card every year. A major infraction, unchecked for a long period, can become a six-figure penalty, and some are on record. A small business may flirt with being forced out of business for failure to comply. Choices have consequences.

Our research in the local area reveals that over 50% of businesses have some variety of Cafeteria Plan, and over 40% of those are not in compliance under current requirements. Most of these are minor infractions, but we also see major infractions too. A plan with major infractions will usually be accompanied by minor infractions. Financial risks can be eliminated or greatly reduced with a little attention to the detail of completion and performance of what is due.

By Raymond C. Horton
Horton Financial Services, L.L.C.
318-222-8600