Education Benefits pay huge returns for everyone

A Section 127 tax-free Educational Assistance Program is the type of financial wellness benefit workers look for today. It helps them prepare for the future, which repays an extra reward when they stay with your company for many more years.

Core Documents provides employers with everything they need to establish an IRS- and DOL-compliant Section 127 Educational Assistance Program in PDF format. There is no annual charge, administration is minimal.

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Section 127 EAP/SLR Basics & Guidelines

Here are the basic rules for a Section 127 EAP:

Employees may receive up to $5,250 annually in tax-free EAP funds.

The company is not required to pre-fund or set aside funds for EAP reimbursements and no separate account is needed.

The company decides the employee groups eligible to participate

An employer may provide the EAP for one group of employees and not another, such as full-time vs. part-time or meeting a certain length of employment with the company; however:

Employers determine the type(s) of educational expenses eligible

Within the following rules, a company may choose to reimburse any or all eligible expenses:

  • An EAP can reimburse employees for tuition, books, supplies, fees, and similar expenses.
  • EAPs may not reimburse for travel, lodging, meals, or any item that may be retained by the employee after the course is finished.
  • However, the course may not cover sports, hobbies, or games.

Student Loan Repayment

Usually, student loan repayment is not part of a Section 127 EAP.

The exception to this rule is for years 2020 through 2025 pandemic relief for student loans. CARES Act allows employers to use EAP in 2020 for employee student loans. The most recent COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, approved December 21, 2020 extended the tax-free status of employer payments toward employee student loans through 2025.

Sponsors can set additional terms for reimbursement

The company is pretty much free to add other terms for Section 127 EAP reimbursement, including:

  • That the course of instruction be relevant to the business of the employer;
  • That an employee remains with the employer for a stated length of time afterward; and,
  • That the employee completes the course with a particular grade level or higher.

Every Section 127 EAP requires a separate written plan document and SPD

Like all other tax-saving employee benefits plans, the IRS and DOL require the employer to have a written plan document with a Summary Plan Description to distribute to employees.

The Plan Document describes the plan to qualify for the tax-free status of the benefit. It includes all plan information, rights, responsibilities, and benefits. The Summary Plan Description (SPD) contains the same basic information in language that is more accessible to the average employee, along with disclosures and notifications required by the IRS and DOL.

The Core 127 Plan Document package includes the Plan Document with SPD, election forms, claim forms, an employer’s administrative guide, and more, prepared specifically for your plan with the information you provide.