educational assistance plan chapter 55 employee benefit & retirement planning copyright 2009,...

Educational Assistance Plan Chapter 55Employee Benefit & Retirement Planning

Copyright 2009, The National Underwriter Company 1

What is it?

A plan that pays or reimburses employees for expenses incurred in:

– Education that improves job-related skills

– Non-job related educational programs

– Education for children or dependents of employees



Advantages

1. Employers benefit when employees gain skills through education

2. Properly structured job-related educational benefits are not taxable income to employees



Disadvantages

1. Broad program may simply train employee for job with another employer

2. Educational benefits beyond certain limits are taxable as compensation to the employee



Tax Implications

1. Individual can deduct job-related educational expenses IF education:

– Maintains or improves skill required in individual’s employment

– Is expressly required by individual’s employer as condition of keeping the individual's job

Other types of education are not deductible



Tax Implications

2. Travel expenses not deductible as job-related educational expenses

3. Employer reimbursements to employees for job-related educational expenses are deductible by employer as compensation

4. Plan can be designed in such a way that it is tax- free



Tax Implications

5. Tax benefits exist for those incurring educational expenses:

– Itemize deduction as employee business expense

– Tuition and fees at eligible post-secondary education institution are deductible even if do not itemize

– Hope Scholarship and Lifetime Learning tax credits



Tax Implications

6. IRS sets specific criteria for “qualified educational assistance plans”; currently, broad range of educational reimbursements allowed on tax-free basis

7. Employer reimbursements for education of employee’s children or dependents are:

– Taxable income to employee– Deductible as compensation by employer



ERISA Requirements

Educational assistance plans may be considered welfare plans under ERISA:

– Written plan

– Written claims procedure

– Summary plan description furnished to employees

Funded plans face additional rules



How to Install a Plan

• Write plan

• Draft and distribute Summary Plan Document in accord with ERISA requirements

• No government approval required



Discussion Question

How is an “educational benefit trust” used?

educational assistance plan chapter 55 employee benefit & retirement planning copyright 2009,...

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