Many employers won’t refund unused pretax SmartBenefits

Many employers around the region are saying they will not refund unused pretax transit benefits to employees under the new SmartBenefits system.

Pretax transit deductions take money out of an employee’s paycheck to put into transit benefits. Many employees, like commenter Chris, have received notices from their employers that once the new system goes into effect January 1st, unused pretax SmartBenefits money at the end of a month will just go back to the company, not back into the employee’s paycheck or rolled over to future months.

Administering SmartBenefits, like any payroll function, is fairly complex. Adding functionality to payroll systems to handle forfeited money, or doing it manually, is almost surely beyond most employers’ capabilities by January 1st. Here’s part of a memo that one of the region’s largest private employers sent to its employees:

Beginning in 2010 any unused pre-tax contributions to your SmarTrip card will not roll over from month to month. Per IRS guidelines any unused benefits at the end of each month will be returned to [employer], similar to the current treatment for unclaimed benefits. Contributions returned to [employer] will be forfeited to the plan and can not be returned to you. …

These changes may require you to take a closer look at the amount of contributions you are setting aside each month for transportation benefits. You may wish to contribute less to minimize the chance of forfeiting any unused benefit to [employer]. If you wish to change your December deduction (your January 2010 benefit), please submit changes to [payroll] November 30 if you are paid biweekly or December 10 if you are paid monthly.

What about the opt-out, where Metro was going to let employers stick with the new system? Chris wrote, “Our benefits coordinator said that Metro does not believe the opt-out functionality will be available by Jan. 1.” We have no way to know if that’s true or just a confused game of telephone. Maybe the opt-out will be available, but an option to let unused benefits automatically roll over, or to handle returning money to employees, is what won’t. Hopefully John Catoe and the rest of the Metro staff will soon break their silence on this issue.

Perhaps they are going to just postpone this change entirely. If they don’t, and continue with the opt-out, there’s a real danger that at least some employers won’t get organized enough to opt out in time. Maybe the best solution is to just apply the new changes to federal employees only and leave out all private employers, or at least all employers that do pretax deductions, until the system can properly handle unused benefits.

Commenters on the previous thread also noted that even for federal employees, the “purse” system breaks down. If someone requests too much money in benefits one month, but also uses the system for personal rides, the faregates will deduct transit benefit money for those personal rides until the employer-paid purse gets empty. ah’s agency plans to just issue a separate card for benefits, which employees are supposed to use for commuting only.

Inevitably, employees will start estimating on the low end of their anticipated transit usage. That will drive up the cost of transit for the riders, not in a way that benefits Metro in higher fare collections they could use to fix the budget, but in a way that just reduces tax deductions.

Update: Commenter bhrome says his wife’s employer is just going to drop SmartBenefits entirely, since they don’t think it’s right to keep employees’ pretax money but can’t handle refunding it. What is your employer saying?