Dependent Care discrimination rules

[Guest ComplianceLvr]

I've been given conflicting advice on how to administer the 55% average benefits test for a Section 129 dependent care assistance program. One argument is that collectively bargained employees are completely excludable, the other is that only those unions who have not negotiated coverage in the plan are excludable.

I read Code Section 129(d)(9) to say that eligible collectively bargained employees should be included. I'd appreciate any of your thoughts on the matter.

Also, is anyone doing this test? I can't find any real world discussion about it, and I'd expect there to be some.

[J Simmons]

I've been given conflicting advice on how to administer the 55% average benefits test for a Section 129 dependent care assistance program. One argument is that collectively bargained employees are completely excludable, the other is that only those unions who have not negotiated coverage in the plan are excludable.

I read Code Section 129(d)(9) to say that eligible collectively bargained employees should be included. I'd appreciate any of your thoughts on the matter.

The 55% test is in IRC § 129(d)(8)(A). IRC § 129(d)(9) provides that "For purposes of paragraphs (3) and (8), there shall be excluded from consideration * * * (B) employees not included in a dependent care assistance program who are included in a unit of employees covered by an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and 1 or more employees, if there is evidence that dependent care benefits were the subject of good faith bargaining between such employee representatives and such employer or employers." Therefore, CBA EEs should be excluded from consideration in the 55% test.

Also, is anyone doing this test? I can't find any real world discussion about it, and I'd expect there to be some.

I suspect as do you that this testing requirement is largely ignored by employers, TPAs, etc.

[Guest ComplianceLvr]

This is the crux of my question, because there are two parts of that exclusion: (1) not included in a dependent care program and (2) benefits were the subject of good faith bargaining.

So if we have more than one union but they all bargain for their benefits, and some are in the dependent care program and some are not, it seems to me that says only the ones who bargained not to have it can be excluded.

[jpod]

I can't say I have the research to back it up, but I think if there is a written CBA, and if the union people are not eligible to participate, the IRS is not going to challenge the assumption that it was the subject of "good faith bargaining." The CBAs specify the employee benefits for which the covered employees will be eligible. It is a very rare labor negotiator (lawyer or otherwise) who has the foresight to make sure that there is an explicit recitation of those employer-sponsored plans for which the covered employees will NOT be eligible.

[J Simmons]

Even without explicit mention in the CBA, there could be evidence, such as notes or recollections that could be memorialized by those that participated in the CBA negotiations, that dependent care benefits were discussed in good faith even though the ultimate CBA did not require the ER to provide the CBU EEs with dependent care benefits. If so, you can exclude those CBU EEs from the 55% test.

If dependent care benefits were not discussed in the CBA negotiations, or the ER refused to discuss those benefits or even consider providing them when the issue was raised by the CBU representatives, then I think you have to include those CBU EEs in your 55% testing.

[jpod]

JSimmons: Is that the standard you advise your clients to use? Even with qualified plans?

[Guest ComplianceLvr]

To turn this question around to a positive, it sounds like :

1. If the union group collectively bargained in good faith, and

2. Bargained to be covered by the dependent care program

Then, that population should be included in the 55% average benefits test.

[J Simmons]

JSimmons: Is that the standard you advise your clients to use? Even with qualified plans?

Hi, jpod,

When advising clients with qualified plans, I usually follow the expanded guidance in Treas Reg § 1.410(b)-6(d) and § 301.7701-17T.

[J Simmons]

To turn this question around to a positive, it sounds like :

1. If the union group collectively bargained in good faith, and

2. Bargained to be covered by the dependent care program

Then, that population should be included in the 55% average benefits test.

Yes, or said another way, in running the 55% test you take into account those CBA EEs that are in a DCAP. You do not exclude them from the 55% testing just because they are CBA EEs and dependent care assistance benefits were the subject of good faith bargaining leading to the CBA. To exclude the CBA EEs from the 55% testing, dependent care assistance benefits must have been the subject of good faith bargaining leading to the CBA and the CBA EEs not in a DCAP.