1. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company1 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

2. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company2 Advantages 1.Employers benefit when employees gain skills through education 2.Properly structured job-related educational benefits are not taxable income to employees

3. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company3 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

4. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company4 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

5. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company5 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

6. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company6 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

7. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company7 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

8. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company8 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

9. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company9 How to Install a Plan Write plan Draft and distribute Summary Plan Document in accord with ERISA requirements No government approval required

10. Educational Assistance Plan Chapter 55 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company10 Discussion Question How is an “educational benefit trust” used?