Employer-Sponsored Education Assistance: 3 Ways to Boost Your Benefits – Sam Slade

Monday, February 01, 2021

Sam Slade, Business Contributor

 

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With the average cost of tuition and fees for a private college in 2020-21 now at $35,087 and average student loan debt nationally $36,510 per borrower, it’s no surprise that education benefits are an increasingly popular way for companies to appeal to workers. If you’re considering enhancing your benefits package to attract and retain employees, here are three options to consider.

Employer-Sponsored 529 Plan: You can offer a 529 savings plan for your employees that gives them the opportunity to open an account and fund it directly through automatic payroll deductions. With a 529, contributions grow tax deferred and can be withdrawn tax-free as long as the student – a child or adult – uses the money to pay for qualified educational expenses. And they may have some state tax benefits for employees as well. To make an employer-sponsored 529 an even more attractive benefit for employees, you can opt to match your workers’ contributions.

Section 127 Plan: While there are some administrative tasks involved like having a written plan document and communicating the terms of the program to employees, you may want to consider an educational assistance plan under Section 127 of the Internal Revenue Code. These plans allow you to pay an employee – and the employee to exclude from income – up to $5,250 annually for qualified educational expenses, including tuition, fees and books. And, with the passage of the CARES Act, the exclusion also extends to payments of qualified loans through 2025. There are some restrictions with a Section 127 plan, however. Specifically, you can’t discriminate in favor of highly compensated employees and employees can’t choose between educational assistance benefits and other cash payments that are taxable as income. Lastly, the employees’ spouse or dependents aren’t covered.

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Section 132 Fringe Benefit: Depending on how you want to design your education assistance, you may choose to provide it as a working condition fringe benefit as long as it satisfies the required conditions. Specifically, an employee can exclude from their gross income any employer-provided benefit for job-related education if it could have been deducted by the employee as an unreimbursed business expense if they paid the amount. With this type of benefit, there’s no limit to the amount of educational assistance you can provide employees each year but, like Section 127 plans, if you pay benefits for anyone other than the employee, they’re not excluded from that individual’s gross income.

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Sam Slade is Managing Director, Employee Benefits, at The Hilb Group of New England, where he delivers consulting and brokerage services to local employers. He has extensive experience in all aspects of employee benefits, including underwriting, plan design, communications, compliance, and analytics, with a particular focus on alternative funding and self-insurance. Sam lives in South Kingstown with his wife and three sons.  

 

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