Qualified Transportation Plans – “Mind the gap”
Recently, there has been a lot of buzz about the new D.C. ordinance, which requires certain employers to establish a transportation fringe benefit program. Several metro areas already have similar ordinances and the trend is expected to continue. When formulating your transportation plan, be mindful of some potential gaps in the design and administration of your program.
Generally, there are three basic plan design options; employer-paid, employee paid pre-tax deductions, and a hybrid in which the employer and employee both make contributions to the plan. Employers often seek out the option that will be the easiest for them to administer. This is especially true when an employer is establishing a program for the sole purpose of complying with a local ordinance. Normally, for ease of recordkeeping, employers establish an “account” for each employee. Employers use these accounts to reimburse employees for their transportation and parking expenses. However, cash reimbursements are not always an option for transit passes.
If transit pass vouchers are readily available, employers may be required to purchase vouchers from qualified vendors and distribute them to their employees. Under Code Section 132(f)(3), if transit passes are readily available, cash reimbursements are prohibited. Determining whether transit passes are readily available, as defined by the Code, can be a confusing and time-consuming analysis. To avoid this hassle, some employers simply exclude transit passes from their transportation plan. This may be problematic for at least two reasons. Some ordinances, such as the new D.C. ordinance, require employers to offer transit benefits. Also, in some metro areas, mass transit is how most people get to work.
Although the voucher requirement is annoying and can be confusing, there are some straight-forward and simple solutions to this dilemma. Employers may allow employees to use certain smartcards, terminal-restricted debit cards, and other electronic payment methods to satisfy the voucher requirement. However, not all electronic payment cards comply with the Code and associated regulations. Employers should seek assistance from qualified counsel to ensure their transportation fringe benefit program complies with the local ordinance and the Code.