Required Plan Document Provisions
- Plan name and employer identification
- Plan year (must be 12 months)
- Eligible employees and dependents
- Qualified benefits offered
- Maximum benefit elections
- Election procedures and deadlines
- Change in status rules
- COBRA continuation coverage (if applicable)
- Claims and appeals procedures
- Nondiscrimination testing procedures
Annual Update Requirements
The plan document must be updated annually to reflect: (1) changes in contribution limits (FSA, dependent care FSA); (2) changes in qualified benefits offered; (3) changes in eligibility rules; and (4) changes in election procedures. The updated plan document must be adopted before the plan year begins.
Plan Document Failure Consequences
Watch Out
Plan document failures can result in loss of pre-tax status for all employee contributions — retroactively. If the IRS determines that a Section 125 plan does not have a valid written plan document, all employee contributions for the affected plan year become taxable income. This can result in significant tax liability for both employees and the employer. Maintain a current, compliant plan document.