Agenda - 11-02-2006-10a - Laserfiche WebLink

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8 scholarship and/or funding models that would allow businesses to contribute to existing subsidy programs for the benefit of their own employees or for the benefit of all, and building or contributing to the building of on-site centers designed to serve the needs of the business's employees. . BENEFIT MODELS There are several benefit models that employers can utilize to pay or help employees pay for child care expenses. Some, like the "cafeteria plans" are utilized more often by smaller businesses or as a portion of the benefit package at a larger employer. Standard benefit packages are more widely used and are found at most larger businesses. Internal Revenue Code Section 125 describes an arrangement by which an employer establishes a plan so employees may choose to reduce pay before taxes (pre-tax contributions), thereby avoiding tax on those dollars used to purchase benefits. The amount set aside is exempt from federal and state income taxes and FICA (Social Security) and Medicare taxes for the employee, and it is exempt from the Social Security and Medicare payroll tax match for the employer. Benefits that may be included in a Section 125 Plan include medical, dental, vision, group-term life, disability, and dependent care assistance. In Code Section 125, the IRS refers to these types of plans as "cafeteria plans." The term "cafeteria plan" is used by the IRS to describe any arrangement in which a participant has a choice between cash (taxable) and benefits (pre-tax). The most common types of Section 125 Plans are explained below: Incrrrance Prenrirrm Conversion: for payment by the employee of a portion of the cost for qualified insurance benefits, such as health, disability, or dental. Flex Plan or Flexible Ben~tPlan: Premium Conversion with Reimbursement Accounts (Medical, Dependent Care, Adoption Assistance). Firll--Flex Plan or Cafeteria Plan: a wide choice of benefits, usually with employer credits that the employee may allocate toward the cost of one or more benefits (including cash). In addition to these "cafeteria" style plans, employers may opt to provide child care costs as a direct benefit in a standard plan, similar to health, dental and life insurance plans offered by many large employers. In these cases, employees without children would get none of the benefit, much like an employee who does not use the employer health plan. SCHOLARSHIP AND OTHER FUNDING MODELS For businesses that are not able to adjust their benefit plans, scholarship and other funding models are another option for assisting employees with child care needs. TloucherModel.• Employers contract with child care providers or child care centers in the community fob services for their employees. Parents are given vouchers for all or part of their child care costs and the child case programs redeem the vouchers for payment through the employer. KeimbrrrrementModel..• Employees choose the child care arrangement best suited to their needs (child care center, family child case. home, after-school program) and then receive a reimbursement from . the company for some portion of the costs. 6