Dependent Care

[tbp]

In a dependent care plan if the employee has elected to participate and makes deferrals every pay, are they entitled to reimbursement from the plan even if the employer hasn't actually made the deposit of their deferrals? We have a plan where the employer sits on the deferrals for months and will not reimburse the employees for dependent care expenses they have incurred.

[J Simmons]

In a dependent care plan if the employee has elected to participate and makes deferrals every pay, are they entitled to reimbursement from the plan even if the employer hasn't actually made the deposit of their deferrals? We have a plan where the employer sits on the deferrals for months and will not reimburse the employees for dependent care expenses they have incurred.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them.

If there is a separate fund being used as contemplated by your OP, then there might be a problem.

DoL Reg 2510.3-102(a)(1) provides

For purposes of subtitle A and parts 1 and 4 of subtitle B of title I of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 U.S.C. 664), the assets of the plan include ... amounts that a participant has withheld from his wages by an employer, ... as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets.

DoL Reg 2510.3-102© provides

With respect to an employee welfare benefit plan as defined in section 3(1) of ERISA, in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than 90 days from the date on which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date on which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).

[tbp]

In a dependent care plan if the employee has elected to participate and makes deferrals every pay, are they entitled to reimbursement from the plan even if the employer hasn't actually made the deposit of their deferrals? We have a plan where the employer sits on the deferrals for months and will not reimburse the employees for dependent care expenses they have incurred.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them.

If there is a separate fund being used as contemplated by your OP, then there might be a problem.

DoL Reg 2510.3-102(a)(1) provides

For purposes of subtitle A and parts 1 and 4 of subtitle B of title I of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 U.S.C. 664), the assets of the plan include ... amounts that a participant has withheld from his wages by an employer, ... as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets.

DoL Reg 2510.3-102© provides

With respect to an employee welfare benefit plan as defined in section 3(1) of ERISA, in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than 90 days from the date on which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date on which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).

They are depositing them into a checking account used for the reimbursements. However, until they actually deposit the deferrals into the checking account they will not pay out any reimbursements.

[J Simmons]

In a dependent care plan if the employee has elected to participate and makes deferrals every pay, are they entitled to reimbursement from the plan even if the employer hasn't actually made the deposit of their deferrals? We have a plan where the employer sits on the deferrals for months and will not reimburse the employees for dependent care expenses they have incurred.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them.

If there is a separate fund being used as contemplated by your OP, then there might be a problem.

DoL Reg 2510.3-102(a)(1) provides

For purposes of subtitle A and parts 1 and 4 of subtitle B of title I of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 U.S.C. 664), the assets of the plan include ... amounts that a participant has withheld from his wages by an employer, ... as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets.

DoL Reg 2510.3-102© provides

With respect to an employee welfare benefit plan as defined in section 3(1) of ERISA, in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than 90 days from the date on which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date on which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).

They are depositing them into a checking account used for the reimbursements. However, until they actually deposit the deferrals into the checking account they will not pay out any reimbursements.

The ER might have inadvertently (and voluntarily) created an ERISA trust by using that separate account. It depends much on how that account is titled. If it has created an ERISA trust, then that plan needs to be reported on a Form 5500 each year even if it is under 100 employees, and it will need to have an annual independent audit performed. An ER that is a laggard in paying claims or transmitting to a separate fund those salary deduction amounts is often someone that also overlooks these audit and reporting requirements as well.

Looks like this ER could be especially vulnerable to a DoL audit, initiated by just one upset EE complaining to the DoL's regional offices.

[Chaz]

In a dependent care plan if the employee has elected to participate and makes deferrals every pay, are they entitled to reimbursement from the plan even if the employer hasn't actually made the deposit of their deferrals? We have a plan where the employer sits on the deferrals for months and will not reimburse the employees for dependent care expenses they have incurred.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them.

If there is a separate fund being used as contemplated by your OP, then there might be a problem.

DoL Reg 2510.3-102(a)(1) provides

For purposes of subtitle A and parts 1 and 4 of subtitle B of title I of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 U.S.C. 664), the assets of the plan include ... amounts that a participant has withheld from his wages by an employer, ... as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets.

DoL Reg 2510.3-102© provides

With respect to an employee welfare benefit plan as defined in section 3(1) of ERISA, in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than 90 days from the date on which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date on which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).

They are depositing them into a checking account used for the reimbursements. However, until they actually deposit the deferrals into the checking account they will not pay out any reimbursements.

The ER might have inadvertently (and voluntarily) created an ERISA trust by using that separate account. It depends much on how that account is titled. If it has created an ERISA trust, then that plan needs to be reported on a Form 5500 each year even if it is under 100 employees, and it will need to have an annual independent audit performed. An ER that is a laggard in paying claims or transmitting to a separate fund those salary deduction amounts is often someone that also overlooks these audit and reporting requirements as well.

Looks like this ER could be especially vulnerable to a DoL audit, initiated by just one upset EE complaining to the DoL's regional offices.

DCAPs are not mentioned in ERISA Section 3(1) as employee welfare benefit plans. How then do the plan asset rules apply? And why would it be within the DOL's jurisdiction?

[J Simmons]

In a dependent care plan if the employee has elected to participate and makes deferrals every pay, are they entitled to reimbursement from the plan even if the employer hasn't actually made the deposit of their deferrals? We have a plan where the employer sits on the deferrals for months and will not reimburse the employees for dependent care expenses they have incurred.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them.

If there is a separate fund being used as contemplated by your OP, then there might be a problem.

DoL Reg 2510.3-102(a)(1) provides

For purposes of subtitle A and parts 1 and 4 of subtitle B of title I of ERISA and section 4975 of the Internal Revenue Code only (but without any implication for and may not be relied upon to bar criminal prosecutions under 18 U.S.C. 664), the assets of the plan include ... amounts that a participant has withheld from his wages by an employer, ... as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets.

DoL Reg 2510.3-102© provides

With respect to an employee welfare benefit plan as defined in section 3(1) of ERISA, in no event shall the date determined pursuant to paragraph (a)(1) of this section occur later than 90 days from the date on which the participant contribution amounts are received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date on which such amounts would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant's wages).

They are depositing them into a checking account used for the reimbursements. However, until they actually deposit the deferrals into the checking account they will not pay out any reimbursements.

The ER might have inadvertently (and voluntarily) created an ERISA trust by using that separate account. It depends much on how that account is titled. If it has created an ERISA trust, then that plan needs to be reported on a Form 5500 each year even if it is under 100 employees, and it will need to have an annual independent audit performed. An ER that is a laggard in paying claims or transmitting to a separate fund those salary deduction amounts is often someone that also overlooks these audit and reporting requirements as well.

Looks like this ER could be especially vulnerable to a DoL audit, initiated by just one upset EE complaining to the DoL's regional offices.

DCAPs are not mentioned in ERISA Section 3(1) as employee welfare benefit plans. How then do the plan asset rules apply? And why would it be within the DOL's jurisdiction?

Good point, chaz. DoL Advisory Opinion 93-25A spells out that if the employee has choice in selecting which day care center at which the services will be provided, then it is not subject to ERISA Title I.