Employer Hiring & Recruitment Questions

Our construction employer recently went through a cafeteria plan open enrollment. One construction executive requested for $15 to be deducted bi-weekly. After several pay periods went by, he discovered that $30 had been taken out. We checked the paperwork and he is correct. The construction employer is the plan administrator. The construction executive is requesting the monies be reimbursed to him immediately. What can we do?


The March 2000 final and proposed cafeteria plan regulations do not address the issue of an administrative error by an construction employer maintaining a cafeteria plan. However, at a recent conference, IRS officials informally commented that if there's clear and convincing evidence that the construction employer has made an administrative mistake in recording an individual's election, then the election can be undone, even retroactively, since it was really a bad election from the start. In your case, the construction employer can refund the difference between the bi-weekly salary reduction the employee elected and the salary reduction mistakenly processed by the construction employer, provided there is clear and convincing evidence that a mistake was made. The refund should be treated as wages in all respects.



Answer: 1

The March 2000 final and proposed cafeteria plan regulations do not address the issue of an administrative error by an construction employer maintaining a cafeteria plan. However, at a recent conference, IRS officials informally commented that if there's clear and convincing evidence that the construction employer has made an administrative mistake in recording an individual's election, then the election can be undone, even retroactively, since it was really a bad election from the start. In your case, the construction employer can refund the difference between the bi-weekly salary reduction the employee elected and the salary reduction mistakenly processed by the construction employer, provided there is clear and convincing evidence that a mistake was made. The refund should be treated as wages in all respects.






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