Surfing with Sharks and Barracudas: Surviving an IRS or DOL Attack!

White_shark_(cropped)If Insurance and Benefits in Phoenix, AZ have you confused, stay tuned.

 

I had not put up an article in some time and those who read my stuff are probably asking themselves “He disappears for weeks and then comes back with this?” Que Pase?

 
Well, I have been telling anybody who will listen that documentation is a really big deal and that employers better be paying attention or the penalty gods (ERISA, DOL, IRS) are going to be making a visit. Those who told me $500 was way to much to get some documents done will be rethinking that if they get hit with an SPD fine. For example $241,000 for failure to provide an SPD.

 
And what is the Surfing with Sharks and Barracudas thing? Glad you asked!

 

 
On any coast with good waves you will find surfers blissfully riding the waves, seemingly oblivious to the carnivorous stuff that lives in the ocean. Two of these are sharks, (think governmental issue) and barracudas (think criminals and scam artists). In the big world of oceans and surfers, actually very few are attacked and of the ones that are, not all injuries are fatal. It still follows though that if the one who gets attacked is you, it is catastrophic. We can insure for much of the “Barracuda” risk but the Sharks are a different story.

 
I use this metaphor because a large portion of American business people are surfing the regulatory waves and hoping they make it to shore every time without an IRS or DOL attack. And if they do get hit perhaps it won’t be that bad. This of course refers to the business people who are actually aware of this issue.

 
IRS has announced they are understaffed and ignore 60% of the calls they get. Does that mean they will not eventually get to every case they need to follow up on? Nope! Eventually they will get around to you and by then past penalties may be big enough to make it worth coming after you. Remember, they have all most unlimited power and the ability to retroactively penalize. And, they can force you to pay before you appeal.

 
Nobody can adequately review or keep up with all of the legal changes and ramifications of legislation because it is just too complex and all encompassing. Like watching the whole ocean for the sharks and barracudas.  The trick is to see what is most pressing in your area of the beach and then plan and protect for it.

 
And that brings me to documentation.

 
If you have an employee benefit plan (group insurance, 401K, etc) you are required to have documentation. At the very least you must have a corporate resolution stating intent to offer the benefits, plan outlines, and a summary plan document you have given to every employee.

 
The cost for these can range from a few hundred dollars to several thousand depending on who you have do them and the complexity of your offer.  But let’s look at it this way.

 
A.    Ignore the issue and pay $241,000 because an employee requests an SPD that  you cannot produce. Remember to add staff time, lost productivity,  and legal costs to this.

 

B.    Spend $500 for document preparation  and delivery and when the employee makes that request you remind them they received these documents at the last plan renewal.

 
Somehow this comes under the general heading of “No Brainer” for me but then there are still employers like the guy who told me (true story) he will throw them out if DOL or IRS try to come into his business.

 
Please let me know how that works out for you! Even if you are right and they were wrong!

 

 

Any questions? Give us a call (602) 381-9900.

 

 

 

 

 


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