EMPLOYEE BENEFIT: A MODEL TUITION ASSISTANCE PROGRAM

Transcription

1 Tuition Assistance Plan (Section 117) EMPLOYEE BENEFIT: A MODEL TUITION ASSISTANCE PROGRAM As competition for high quality teachers increases in the months and years ahead, private schools may wish to consider making their current benefits package more robust and attractive to prospective and current staff. While many schools have long offered tuition reduction and payment or reimbursement for education expenses as tax-exempt benefits to their employees, a third option would be to provide a Tuition Assistance Program (TAP) that is based in concept on the "cafeteria plan" model. The primary advantage of such a program is that it offers a greater number of employees a wider array of benefits. Features of TAP, which meld tuition reduction (Internal Revenue Code Section 117(d)) and employee jobrelated educational expenses (IRC Section 132), include: Offering a benefit amount of total reimbursements to all eligible staff, whether they have children or not; Permitting eligible staff to use their benefit amount for their own or their family's tuition expenses for education below the graduate level or for the employee's job-related educational expenses; and Allowing eligible staff to "bank" their benefits and use the accumulated amount for tuition expenses for education below the graduate level or the employee's job-related educational expenses. We hope this model Tuition Assistance Program, prepared for us by Dave Raish and Sharon Remmer of Ropes & Gray, is helpful to your school community as it recruits and retains talented faculty during this challenging time. View the program below or download it as a PDF document. Please note that the TAP is only a model and should not be used as a substitute for consulting with legal counsel. Patrick F. Bassett President Independent Schools Association of the Central States Jefferson G. Burnett Director of Government Relations National Association of Independent Schools July National Association of Independent Schools and Independent School Association of the Central States

2 EMPLOYEE BENEFIT: A MODEL TUITION ASSISTANCE PROGRAM N.B. Bracketed text to be filled in or alternatives to be selected at the School's discretion [NAME OF SCHOOL] TUITION ASSISTANCE PROGRAM Article 1 Introduction. 1.1 Purpose of Program. This Program is intended to provide [Name of School] employees with educational benefits that are excludable from the employees' gross income under Section 117(d) or Section 132 of the Internal Revenue Code. Under the Program, the School will reimburse eligible employees up to [$ ] per year for qualifying educational expenses they incur for themselves, their spouses or their dependent children. This Program is effective [date]. Article 2 Definitions. Wherever used herein, the following terms have the following meanings unless a different meaning is clearly required by the context: 2.1 "Administrator" means the School or such other person or committee as may be appointed from time to time by the School to supervise the administration of the Program. 2.2 "Benefit Amount" means the total amount of reimbursements available for any Plan Year under Section "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.4 "Dependent" means a Participant's spouse or dependent child described in Section "Educational Institution" means an accredited educational institution (including the School) that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on. 2.6 "Eligible Employee" means an Employee described in Section "Employee" means an individual who is employed by the School. 2.8 "Participant" means each Eligible Employee who participates in the Program under Article "Plan Year" means [the twelve-month period beginning July 1 and ending the following June 30] or [other].

3 2.10 "Program" means the [Name of School] Tuition Assistance Program as set forth in this document, together with any and all amendments and supplements hereto "School" means [Name of School] "Tax-Exempt Educational Institution" means an Educational Institution that is exempt from tax under Section 501(c)(3) of the Code. Article 3 Eligibility and Participation. (Please read the footnotes associated with Sections 3.1, 3.2, and 3.5, which describe a few possible results of selecting incompatible options.) 3.1 Eligibility1. An Employee will be eligible to participate in the Program if [he or she is regularly scheduled to work half-time or more for the School] or [other]. 3.2 Participation2. An Eligible Employee will begin participation in the Program [on his or her first day of work as an Eligible Employee] or [on the July 1 after completion of [ ] years of continuous service as an Eligible Employee] or [other]. 3.3 Cessation of Participation. A Participant will cease to be a Participant when he or she ceases to be an [Eligible Employee] or [Employee]. 3.4 Resumption of Participation. A former Participant will resume participation on the first [day] or [July 1] or [other] on which he or she is again an Eligible Employee. 3.5 [Retirement, Disability or Death of a Participant3.In the event of a Participant's [retirement at or after age 55, or] termination of employment due to disability or death, the Dependents of the Participant will be entitled to benefits as follows: (a) All of the Dependents of the Participant will be treated collectively as a single Participant; (b) Any unused Benefit Amount under Section 4.1 will be available to the Dependents as a group; (c) The Benefit Amount available to the Dependents may be applied against educational expenses described in Section 4.2 (but not Section 4.3); and (d) If this Section 3.5 is applicable because of the Participant's [retirement or] termination of employment due to disability, elections required under this Program will continue to be made by the Participant. If this Section 3.5 is applicable because of the Participant's death, elections required under this Program will be made by the Participant's spouse, or if there is no surviving spouse, by the executor of the Participant's estate.]

4 Article 4 Benefits Select one of the following five options for Section 4.1: Option A: Simple Form of up to [$ ] of educational expenses described in Section 4.2 or 4.3 that are incurred during the Plan Year. A Participant may elect to obtain payment or reimbursement of one educational expense or several expenses in combination. Any unused Benefit Amount for a Plan Year cannot be applied against educational expenses incurred in prior or subsequent Plan Years. Option B: Simple Form with Carry Over of up to [$ ] of educational expenses described in Section 4.2 or 4.3 that are incurred during the Plan Year. A Participant may elect to obtain payment or reimbursement of one educational expense or several expenses in combination. Any unused Benefit Amount for a Plan Year may be carried over to subsequent Plan Years, but the total Benefit Amount available to any Participant for any Plan Year cannot exceed [$ ]. [Except as provided in Section 3.5,] if a Participant's employment with the School terminates, the Participant will forfeit any unused Benefit Amount, and in the event of his or her reemployment by the School, such Benefit Amount will not be reinstated. Option C: Increasing Benefit of educational expenses described in Section 4.2 or 4.3 that are incurred during the Plan Year in accordance with the following schedule: Years of Service Benefit Amount [$ ] 3 [$ ] 4 or more [$ ] "Years of Service" means the total number of years [during which the Participant was regularly scheduled to work half-time or more with the School] or [of continuous service as an Eligible Employee], determined as of the end of the current Plan Year. A Participant may elect to obtain payment or reimbursement of one educational expense or several expenses in combination. Any unused Benefit Amount for a Plan Year cannot be applied against educational expenses incurred in prior or subsequent Plan Years.

5 Option D: Increasing Benefit with Carry Over of educational expenses described in Section 4.2 or 4.3 that are incurred during the Plan Year in accordance with the following schedule: Years of Service Benefit Amount [$ ] 3 [$ ] 4 or more [$ ] "Years of Service" means the total number of years [during which the Participant was regularly scheduled to work half-time or more with the School] or [of continuous service as an Eligible Employee], determined as of the end of the current Plan Year. A Participant may elect to obtain payment or reimbursement of one educational expense or several expenses in combination. Any unused Benefit Amount for a Plan Year may be carried over to subsequent Plan Years, but the total Benefit Amount available to any Participant for any Plan Year cannot exceed [$ ]. [Except as provided in Section 3.5,] if a Participant's employment with the School terminates, the Participant will forfeit any unused Benefit Amount and, in the event of his or her reemployment by the School, [the Benefit Amount will not be reinstated] or [neither the Benefit Amount nor his or her Years of Service will be reinstated]. Option E: Restriction on Benefit Amount During Waiting Period of up to [$ ] of educational expenses described in Section 4.2 or 4.3 that are incurred during the Plan Year; provided, however, that for the first [ ] years during which the individual participates in the Program (the "Waiting Period") such amount will not actually be paid or reimbursed but will instead be credited to a bookkeeping account each year. At the end of the Waiting Period, the Participant may elect to have the total Benefit Amount that has accumulated in the bookkeeping account (or any portion thereof) applied against educational expenses incurred in prior or subsequent Plan Years. Any unused Benefit Amount, whether it is attributable to the Waiting Period or any time thereafter, may be carried over to subsequent Plan Years, but the total Benefit Amount available to any Participant for any Plan Year cannot exceed [$ ]. [Except as provided in Section 3.5,] if a Participant's employment with the School terminates, the Participant will forfeit any unused Benefit Amount, and in the event of his or her reemployment by the School, such Benefit Amount will not be reinstated [and the Participant's Waiting Period will begin anew].

6 4.2 Tuition Below the Graduate Level. Any portion of the Benefit Amount may be used for tuition expenses (but not other expenses) of the Participant, or one or more Dependents of the Participant, at a Tax-Exempt Educational Institution for education below the graduate level, including kindergarten, elementary, secondary or undergraduate education and, if approved by the Administrator, educational, sports or skill development camps, outdoor survival courses, and rehabilitation programs. "Dependent" means a Participant's legal spouse or dependent child. A "dependent child" is a Participant's child, stepchild, foster child whose principal place of abode is the Participant's home and who is a member of the Participant's household, or legally adopted child (including a child who is a member of the Participant's household and who has been placed there by an authorized placement agency for legal adoption), provided that one of the following statements is true: the Participant provides over half of the child's support for the year; or both of the child's parents are deceased and the child has not reached age 25; or the parents are divorced or legally separated (including separation under a written separation agreement, or living apart for the last six months of the year); the child receives over one-half of his or her support from one or both parents (or their spouses); and the child is in the custody of one or both parents for more than one-half of the calendar year; or the Participant is allowed to treat the child as a tax dependent under special Code rules that apply to multiple support orders. 4.3 Job-Related Educational Expenses. Any portion of the Benefit Amount may be used for tuition, fees, [books, supplies, boarding expenses] or similar expenses incurred by the Participant (but not a Dependent) in attending courses, including graduate level courses, at an Educational Institution, provided that such courses satisfy the following conditions: the courses maintain or improve the skills required by the Participant's current job, or the courses meet the express requirements imposed by the School or applicable law in order for the Participant to retain his or her job, pay or status; and the courses neither enable the Participant to meet the minimum educational requirements of his or her job nor do they qualify the Participant for a new trade or business. 4.4 Payment of Benefits. To obtain payment or reimbursement under the Program, a Participant must submit a copy of the tuition bill or other statement from the Educational Institution [and, in the case of expenses described in Section 4.3, evidence of satisfactory completion of each course for which reimbursement is sought]. The Participant must also comply with such conditions or procedures as may be established by the Administrator from time to time. 4.5 No Benefits in Lieu of Other Compensation. In no event will benefits be paid under this Program in lieu of cash or any other compensation to which Participants might otherwise be entitled from the School.

7 Article 5 Administration, Amendment, and Termination. 5.1 Administrator. To the fullest extent permitted by law, the Administrator shall have the full discretion to determine all matters relating to the interpretation and operation of the Program, including eligibility and benefits under the Program. Any determination by the Administrator shall be final and binding, in the absence of clear and convincing evidence that the Administrator acted arbitrarily and capriciously. 5.2 Status and Duration of Program. This Program is intended to provide benefits that are excludable from taxation under Section 117(d) or Section 132 of the IRC, and the Program is to be interpreted consistently with those Sections. The Program may be changed at any time by the School to maintain compliance with those Code Sections or other applicable laws. The School also reserves the right to modify this Program in any other respect, or to discontinue this Program at any time. Article 6 Miscellaneous. 6.1 Limitation of Rights. Neither the establishment of the Program nor any amendment thereof will be construed as giving to any Participant or other person any legal or equitable right against the Administrator or the School, except as expressly provided in this document, and in no event will the terms of employment or service of any Participant be modified or in any way be affected by the Program. 6.2 Benefits Solely from General Assets. The benefits provided under the Program will be paid solely from the general assets of the School. Nothing in this document will be construed to require the School or the Administrator to maintain any fund or segregate any amount for the benefit of any Participant, and no Participant or other person will have any claim against, right to, or security or other interest in, any fund, account or asset of the School from which any payment under the Program may be made. 6.3 Nonassignability of Rights. The right of any Participant to receive any benefits under the Program will not be alienable by the Participant by assignment or any other method, and will not be taken by his or her creditors by any process whatsoever, and any attempt to cause such right to be so subjected will not be recognized, except to such extent as may be required by law. 6.4 No Guarantee of Tax Consequences. Neither the Administrator nor the School makes any commitment or guarantee that the value of any benefit provided to a Participant under this Program will be excludable from the Participant's gross income for federal or state income tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant. It is the obligation of each Participant to determine whether each payment under the Program is excludable from his or her gross income for federal and state income tax purposes. If any payment under this Program becomes taxable, any employment tax withholding owed with respect to such payment may be deducted from the Employee's other compensation in the same calendar year in which the payment is provided.

8 6.5 Limitations with Respect to Certain Participants. Notwithstanding any other provisions of this Program, the Administrator may limit participation by, or the amounts paid to, any Participant who is a highly compensated employee (within the meaning of Code Section 414(q)), to the extent that the Administrator considers such limitation to be advisable in order to assure compliance with any applicable nondiscrimination provisions of the Code. NAVIGATION: Introduction Definitions Eligibility & Participation Benefits Administration, Amendment, & Termination Miscellaneous FOOTNOTES: 1. Section 3.1- Section 4.1: A School ought to consider the interaction between its definition of "Eligibility" in Section 3.1 and the calculation of the Benefit Amount in Section 4.1. This is particularly important when an employee is only eligible for participation if he or she belongs to a particular employee classification at the School, such as faculty or staff. If the School then selects Option C or D under Section 4.1, it must determine whether all years of service count towards accumulating a Benefit Amount or only that service which is performed in an eligible position. Both choices are included in the Program document. Back to Text 2. Section Section 4.1: A School will also need to consider how its definition of "Participant" affects the calculation of the Benefit Amount in Section 4.1. If a School requires employees to complete a certain number of years of service in order to participate in the Program, the years required to receive a Benefit Amount in Options C and D ought to be consistent. For example, Option C could indicate that a dollar amount is available in Year 1, even though individuals cannot participate under Section 3.2 until they have completed five years of service. In that scenario, the dollar amounts listed in Section 4.1 for Years 1-4 would be irrelevant, because Option C does not permit the carry-over of unused benefits from year to year.

9 3. Section Section 4.1: If a School decides to include Section 3.5 (under which Dependents may be entitled to a Participant's unused Benefit Amount), it will affect Options B, D and E of Section 4.1. The last sentence of those Options states that if a Participant terminates service, his or her Benefit Amount will be forfeited. However, if Section 3.5 is selected, the Benefit Amount would actually be available to Dependents. In order to be consistent, the phrase "except as provided in Section 3.5" must be included in Section 4.1 (as indicated in the Program document). In selecting Section 3.5, the School must also decide whether or not it wishes to provide benefits to a Dependent in the event of a Participant's retirement. If the School decides to do so, there are two phrases within Section 3.5 itself that must be selected. Back to Text 4. Please note that a School's definition of "eligibility" and "participant" in Sections 3.1 and 3.2 respectively may affect the calculation of Years of Service for purposes of Option C or D. If a School decides to include Section 3.5, it would affect Options B, D, and E. See footnotes 1,2,and 3 above for details National Association of Independent Schools and Independent School Association of the Central States