updated Jan. 3, 2013
Update: On Jan. 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (H.R. 8), preventing the U.S. from going over the impending “fiscal cliff.” The legislation extends through 2013 the increase in the monthly tax exclusion for transit and vanpool benefits. This provision restores the parity of the benefit to fund on a pre-tax basis public transportation and vanpool expenses, up to the same limit as commuter parking expenses—$240 per month. On Jan. 1, 2012, the amount that could be set aside to cover parking costs as part of a commute to work increased from $230 to $240 per month due to a cost of living adjustment. At the same time, benefits for public transportation commuters were reduced to $125 per month.
Employers generally can exclude the value of transportation benefits from the employee’s wages up to the IRS limits. As employees save money, so do employers through reduced payroll taxes that can offset the cost to implement a benefits program. Alternatively, employers can offer subsidized commuter benefits as an employee benefit. See "'Fiscal Cliff' Bill Affects Payroll Tax Withholding and Employee Benefits."
As gas prices have spiked, employees started looking for ways to ease the cost of their daily commute to work. In some cases, they didn't have to look far because their employers offer a range of programs including a qualified transportation expense plan or transit subsidy.
"Since gas prices began to go up, I've been getting at least one e-mail a week from employees who want to know what to do about it," said Ruth Cummings, senior HR benefits consultant for the Regence Group, a Portland, Ore.-based health insurer with 6,000 employees and operations in four states. Fortunately for those employees, Cummings has a helpful story to tell. The company launched its transportation benefits program in 2000. There are several elements to the program, as described below.
Mass transit via pre-tax dollars. The first option allows employees who use mass transit, including bus, ferry, rail or vanpool, to pay for those costs using pre-tax dollars. The administration of this program is relatively straightforward. Regence employees can elect to contribute a certain amount of money in their account each month, an amount that can be changed as often as necessary. This is helpful when employees know they will not be commuting because of a vacation or leave of absence. Employees must then purchase transit tickets or passes with their own funds and fill out a reimbursement form with their used transit tickets or passes attached to receive their reimbursement.
[Federal tax law allows employees in 2013 to exclude $240 per month for transit passes and commuter highway vehicle transportation, such as a van pool, and $240 per month for qualified parking.]
Because these programs are not governed by the Employee Retirement Income Security Act (ERISA), companies do not have to file Forms 5500 for them. However, Cummings suggests that companies create a plan document that explains how the plan works. "Even though the law doesn't require companies to have such a document, it can provide guidelines if there are any issues with the program," she noted.
Public transit subsidy. Regence Group also provides a subsidy of up to $30 per month for employees who use public transportation. The company is considering an increase to the size of the subsidy as a way to encourage more employees to use mass transit. The company also recognizes that the subsidy is a strong tool for attracting and retaining employees, particularly in the company's Washington and Oregon locations.
"Some employers in Seattle and Portland, including some hospitals, provide employees with free bus passes, so we have to be competitive," Cummings said. "We study what other companies do and take a hard look at what we need to do to compete. These programs make us attractive as a downtown employer."
Carpooling incentives. At locations that are not well served by mass transit, the company has set up an electronic carpooling "bulletin board" so that employees can contact each other via e-mail to set up carpooling arrangements. At one of its work sites in the state of Washington, the company offers discounted parking for employees who carpool. The discount is prorated based on the number of people in the carpool.
The company is considering expanding this parking discount to other facilities with parking fees, says Cummings. (There's more on creating an effective carpooling program below.)
Bike friendly. Finally, Regence Group has taken steps to accommodate those who ride their bikes to work by providing storage facilities and showers.
A Low-Cost Benefit?
Transportation benefits tend to be a relatively low-cost benefit. However, many companies use an outside vendor to administer the program, which adds to the expense of offering the program. The good news is that these costs are sometimes offset by the amount of money a company saves on FICA taxes when employees make pre-tax contributions to their transportation benefit accounts.
Consider this: When Regence Group launched its transportation reimbursement program, it conducted a cost savings analysis based on the amount of FICA taxes saved and found it came to $86,000. Cummings said that the number would be significantly higher today.
A Carpooling Success Story
Moreover, transportation benefits do not have to be costly to be effective. In many cases, companies can help employees reduce the cost of their commute simply by acting as a conduit of information. Like Regence Group, Roseville, Calif.-based Surewest Communications offers its 950 employees a system for identifying potential carpooling partners and offers premium parking spaces for employees who carpool. The company allows employees to use its computer system to fill out a carpooling form with their work schedule and location so that they can be matched with carpool partners that fit their needs.
"We just make it easy for employees to find each other," said Lynn Marks, the company's executive director of HR. Information about the carpooling program is also offered to new employees during orientation.
Carpooling employees must register as such with the company. Each registered employee receives a carpool permit so that the day's driver will have his or her own permit, but they can only use one of the company's 46 designated parking spaces on the days that they carpool. "It's a relatively simple program that works because everyone wants a good parking space," Marks said. "They just have to carpool to get one."
Have a Dedicated Resource
No matter what type of transportation program a company offers, it should designate one person as the key contact for the program. Surewest Communications has appointed this task to its safety and risk manager. "Someone has to keep the program going," Marks explained.
This individual must also stay current on changes in federal tax laws and new government programs that might benefit employees. For instance, in addition to administering the carpooling program, Surewest's safety and risk manager maintains contact with the city and county governments in the locations in which the company has operations to keep up with transportation management information, including new transit programs and news about road construction and congestion.
Joanne Sammer is a business and financial writer.