Guest Article

(From the October 6, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

San Francisco Requires Employers to Provide Transportation Benefits

By mid-January 2009, employers with 20 or more employees will be required to provide transportation benefits to those employees who, in the prior month, performed an average of at least 10 hours of work per week in San Francisco. Employers have the option of providing either an IRC § 132(f) pre-tax election program, a transit pass (or reimbursement for equivalent vanpool charges up to the amount of the monthly transit pass), or employer-provided transit.

To foster use of public transportation and assist the City and County of San Francisco ("San Francisco") in achieving their goal of reducing carbon dioxide emissions to 20 percent below 1990 levels by the year 2012, San Francisco amended its Environment Code effective September 22, 2008 to require employers to provide minimum transportation benefits within 120 days -- or by January 19, 2009.

Employers who fail to comply may be subject to civil penalties of up to $100 for the first violation, up to $200 for a second violation within the same year, and up to $500 for each additional violation within the same year. In lieu of these civil penalties, administrative fines under the San Francisco Administrative Code may be imposed.

Briefly, the new law requires covered employers to provide covered employees with minimum transportation benefits, as outlined below.

It is anticipated that regulations will be issued to provide guidance on the new requirements (e.g., on calculating the average number of employees, the average number of hours worked, etc.). Clarification will also be needed on how the "look back" determination is administered in connection with the initial implementation of the law. For example, will January 19 be the date counting hours must commence in order to determine which persons are "covered employees" entitled to benefits on February 1 -- or, will December be the "look back" month for counting hours in order to determine which persons are "covered employees" entitled to benefits no later than January 19?

An IRC § 132(f) pre-tax contribution arrangement is the least expensive and probably the most appealing of the employer alternatives. While an employer will bear some administrative expenses, the contributions/benefits up to the specified federal limit are a deductible business expense, excluded from the employee's gross income for federal income tax purposes, and also do not count as wages for purposes of FICA, FUTA or the federal income tax withholding requirements. However, in order to have an IRC § 132(f) plan up and running, document preparation, employee communications, pre-tax contribution elections, and a payroll withholding set-up must be accomplished -- a project that employers would want to start well before the January 19, 2009 deadline.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067 Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.