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Transit benefits interest accelerates as gas prices climb
Tom Anderson
Employee Benefit News  December 2005
Expensive gasoline, due in part to the economic fallout from Hurricanes Katrina and Rita and the war in Iraq, is fueling new interest in transportation benefits, such as qualified transportation expense plans and carpooling arrangements.

"We've seen a 30% increase in companies calling us interested about transit plans," says Tom Guiler, vice president of Benefit Resource Inc., which administers pre-tax benefit plans. High prices at the pump have "created grassroots demand that is forcing employers to get off the fence."

Qualified transportation expense plans enable employees to save 30% to 40% on out-of-pocket expenses on certain work-related transit and parking costs by paying for them with pre-tax dollars. Under IRS Code Section 132, these expenses are exempt from federal income taxes, Social Security taxes, and they usually are not subject to state income taxes. Furthermore, employers do not pay FICA tax on the money their employees set aside.

Commonly used in major cities by commuters who take mass transit, the benefit also is available to workers who use carpools, extending the value of the benefit beyond urban centers. Qualified transportation benefits are used to pay the cost of a growing number of vanpool commuters, says Tom Wilson, vice president of benefits operations at Ceridian, a large provider of transit benefits. Vanpooling with 6 or more passengers, excluding the driver, is another expense that is eligible for a reimbursement through a qualified transit plan.

"The great thing about vanpools is that they are not plan-year dependent. You can start one at any time of the year," Wilson explains.

Growing demand

Most employees want to telecommute, carpool or take public transportation, rather than face high gas prices at the pump, according to a recent survey by ComPsych, which runs employee assistance programs.

While many workers want to shift their commuting habits to cheaper alternatives, at least 44% feel they can't change their commuting habits as they desire. Thirteen percent already telecommute, carpool or take public transportation, and 16% plan to do so due to steep gas prices. ComPsych surveyed more than 1,000 employees at its client companies.

Research conducted by Ceridian in late 2004 revealed that nearly 80% of current enrollees find commuter benefits "very important."

High gas prices have placed a financial burden on many employees. ComPsych's EAP has seen a "noticeable uptick" in workers seeking ways to cope, says CEO Richard Chaifetz.

Americans are now paying an average of $2.81 per gallon to fuel the sedans, sports-cars, SUVs, and pickup trucks they depend on everyday to get to work, according to an analysis by research firm Salary.com.

At the current gas price level and average fuel economy of 17.8 miles/gallon, average American workers, who earn the national average salary of $40,409, spend 3.3% of their paychecks on gas needed to commute to and from work, estimates Bill Coleman senior vice president of compensation at Salary.com. (See chart) Coleman worries that gas prices are wiping out any raises employees would receive from their employers.

"The reality is that while every commuter is experiencing a financial hardship with increases in gas prices, those individuals earning the minimum wage of $5.15 per hour are being the hardest hit, with a whopping 11.3% of their salary pumped into their gas tank annually," Coleman notes.

Employers with teleworking benefits or subsidies for public transportation should promote those perks in times of steep gas prices, Chaifetz advises. About 37% of employers offer teleworking benefits on part-time basis, and 19% offer them on a full-time basis, according to the Society for Human Resource Management.

Flat tire

Long-term high gas prices might nudge more employers to offer the benefit, but it hasn't done so in the past. Despite rising gas prices over several years, the number of employers with transportation benefits has remained relatively flat.

This year, 14% of companies offered a qualified transportation expense plan or transit subsidy, compared to 13% in 2001, according to the Society for Human Resource Management's 2005 benefits survey. The Census Bureau reports that 12% of workers take public transportation and 5% carpool.

Yet as high gas prices prompt many workers in the United States to reconsider how they conduct their daily commute, Ceridian observes increased enrollment in commuter assistance programs, Wilson says.

However, many employers are so focused on health care costs that they feel they can't add additional benefits, Wilson observes. "The reality is that transit benefits could offset the total cost of providing benefits because employers save on FICA taxes," he says.

It typically costs a provider $4 or $5 per employee per month to administer a transit plan, but the company would save roughly 7.5% on every dollar put in that plan due to FICA, Wilson notes.

Road rage

Salary.com analyzed how gas prices eat into the compensation of the average American worker.

National average gas price $2.80*
Estimated commute cost $1,341
Effective gas-price per gallon per year pay cut 3.3%

National average gas price $4.00
Estimated commute cost  $1,907
Effective gas-price per gallon per year pay cut  4.7%

National average gas price $5.00
Estimated commute cost  $2,384
Effective gas-price per gallon per year pay cut 5.9%

* National average gas price per gallon in October

Source: Salary.com