We have a facility in San Francisco and the city will allow bus fare as a pre-tax benefit. We have a section 125 plan. How do we handle this new pre-tax bus fare? Can we do it? Any thoughts out there?

It isn't the city of San Francisco that allows for this but Section 132(f)(4) of the Code as amended by the Transportation Equity Act. Your company purchases the bus passes and deducts the cost of the passes from the employees' paychecks on a pre-tax basis. It works like a POP plan under Section 125. By the way, parking or transportation expenses can not be part of a Section 125 plan.

Joe is correct, these expenses are not permitted in a section 125 plan. The pre-tax parking and transit need to be a separate benefit and should be formally adopted and have a plan document, though that is not currently required. The costs can also function like reimbursment accounts with the employees incurring the expense and submitting claims to be reimbursed.

EBIA has a sample Transportation Benefits document in its Cafeteria Plan manual. They are careful to state that the 2 are entirely separate. One thing about the transportation. It seems that the election is monthly, and that there is no use it or lose it.