1. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company1 What is it? A dependent care assistance plan –Reimburses employees for day care and other dependent care expenses OR –Provides an actual day care center or similar arrangement

2. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company2 When is it indicated? Employer wants to attract and retain employees who must find care for dependents during work hours To provide attractive tax benefit to all employees with dependent care expenses

3. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company3 Advantages 1.Helpful in recruiting and retaining low-paid employees who have dependent care needs 2.Provides tax advantages to employer; dependent care assistance is tax-free to employees 3.Plan can be funded in part or total through FSA salary reductions

4. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company4 Disadvantages 1.Fully-subsidized dependent care is costly; partially subsidized program may not attract and keep employees 2.Nonparticipating employees may see dependent care as discriminatory

5. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company5 Design Features 1.In-kind –Day care and after school care on business premises –Contract with nearby center 2.Provide benefit through full or partial reimbursement of qualifying employee expenses for dependent care

6. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company6 Tax Implications 1.Plan costs tax deductible to employer 2.Benefits tax-free to participating employees 3.If plan is discriminatory, plan benefits become taxable to highly compensated employees 4.Dependent care assistance only available for –Dependent child under age 13 –Spouse or dependent physically or mentally unable to care for self

7. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company7 Tax Implications 5.Limit on dollar amount of benefits 6.Qualifying expenses for care alone, not education, above kindergarten level 7.Dependent care assistance plan must be in writing 8.Taxpayer must report name, address, and tax identification number of care provider

8. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company8 ERISA and Other Requirements Welfare benefit plan under ERISA –Written plan document –Summary plan description –Designated plan administrator –Formal claims procedure Employer must give statement of prior year expenses to employees using plan

9. Dependent Care Assistance Plan Chapter 54 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company9 Alternatives How to Install a Plan Extra compensation Bonuses Develop: –Written plan –Summary plan description