WSR 01-21-091

PERMANENT RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[ Filed October 22, 2001, 9:26 a.m. ]

Date of Adoption: October 14, 2001.

Purpose: The department is amending the dependent care assistance salary reduction program (DCAP) rules. The department is repealing all existing DCAP rules (WAC 415-610-010 through 415-695-040), and replacing them with new rules in one chapter (chapter 415-600 WAC). The Department of Retirement Systems (DRS) is also putting the rules into plain English, and making some housekeeping changes such as changing the names of headings to make it easier to find information. No substantive changes are being made.

Citation of Existing Rules Affected by this Order: Repealing WAC 415-610-010 through 415-695-040.

Statutory Authority for Adoption: RCW 41.50.050(5), 41.04.600 through 41.04.645.

Other Authority: 26 U.S.C.

Adopted under notice filed as WSR 01-17-057 on August 14, 2001.

Changes Other than Editing from Proposed to Adopted Version: WAC 415-600-240 corrected as follows: "does not apply to relatives" moved from subsection (8) to subsection (9).

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 25, Amended 0, Repealed 40.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 25, Amended 0, Repealed 40.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.
Effective Date of Rule: Thirty-one days after filing.

October 14, 2001

John Charles

Director

OTS-5078.2

Chapter 415-600 WAC

DEPENDENT CARE ASSISTANCE SALARY REDUCTION PROGRAM

OVERVIEW


NEW SECTION
WAC 415-600-010   Dependent care assistance salary reduction program established.   Chapter 415-600 WAC covers the Washington state department of retirement systems (DRS) dependent care assistance salary reduction program (DCAP). The authority for DCAP is provided by RCW 41.04.600 through 41.04.645, and sections 125 and 129 of the Internal Revenue Code.

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NEW SECTION
WAC 415-600-020   What is DCAP?   The dependent care assistance salary reduction program (DCAP) allows you to set aside a "before tax" portion of your gross earnings to use for eligible dependent care expenses. DCAP reduces the amount of federal withholding and Social Security taxes (OASDI and Medicare or FICA) taken from each paycheck. Salary reduced under the program continues to be included as regular compensation for the purpose of computing state retirement benefits. The amount that may be reduced from your salary and excluded from your income is subject to annual fixed dollar and earned income limitations. When you incur eligible dependent care expenses you will be reimbursed from the amount set aside, consistent with these rules. If any portion of the amount set aside is not used by the end of the plan year, the unused amount will be forfeited.

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NEW SECTION
WAC 415-600-030   DCAP is a separate program.   The provisions in chapter 415-600 WAC apply only to the dependent care assistance salary reduction program and not to any other program that the department of retirement systems administers.

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NEW SECTION
WAC 415-600-040   Interpretation of DCAP.   The dependent care assistance salary reduction program is intended to qualify as a dependent care assistance salary reduction program under sections 125 and 129 of the Internal Revenue Code (IRC) and is to be interpreted in a manner consistent with the requirements of those sections. In case of a discrepancy between the sections in this chapter and the IRC, the IRC takes precedence.

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DEFINITIONS
NEW SECTION
WAC 415-600-110   Definitions used in DCAP.   (1) Dependent care account means a bookkeeping account containing the salary reduction amounts attributable to a participant, less reimbursement for the participant's dependent care expenses.

(2) Dependent care expenses means amounts paid for services which, if paid by the employee, would be considered employment related expenses under Internal Revenue Code Section 21 (b)(2) and WAC 415-600-310.

(3) Eligible employee means state of Washington employees, officers, and elected officials.

(4) Employer means the state of Washington.

(5) Incurred expenses means expenses for services that have already been provided.

(6) Internal Revenue Code (IRC) means Title 26 of the United States Code (U.S.C.). Reference to a specific provision of the code includes such provision, any associated regulations, and any comparable provision of future legislation that amends, supplements, or supersedes such provision. Copies of the applicable IRC sections are available in law libraries and from the department of retirement systems (DRS). You can also obtain them by searching United States government references on the Internet.

(7) Participant means an eligible employee who has submitted a DCAP salary reduction agreement that is approved by DRS.

(8) Program means this dependent care assistance salary reduction program (DCAP).

(9) Plan year means January 1 through December 31.

(10) Qualifying person means:

(a) A dependent of the participant who is twelve years old or younger, for whom the participant is entitled to a deduction under IRC Section 151(c); or

(b) A dependent or spouse of the participant who is mentally or physically incapable of self-care; or

(c) A child of a divorced or separated participant, who is twelve years old or younger, if the participant has custody of the child, even if the participant has released an exemption under IRC Section 152 (e)(2).

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PARTICIPATION AND TERMINATION
NEW SECTION
WAC 415-600-210   How do I enroll in DCAP?   (1) You enroll in the dependent care salary reduction assistance program (DCAP) by submitting a completed salary reduction agreement (SRA) form to the department of retirement systems (DRS).

(2) SRA forms are available through DRS or its web site at http://www.wa.gov/drs/forms/.

(3) You may enroll in DCAP:

(a) During the open-enrollment period;

(b) Within sixty days of becoming an eligible employee; or

(c) At any time you have a qualifying change in status as set forth in WAC 415-600-240.

(4) The open enrollment period is the month of November for the following plan year.

(5) The enrollment process is complete on the date DRS approves your completed SRA.

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NEW SECTION
WAC 415-600-220   What is a salary reduction agreement?   (1) The salary reduction agreement (SRA) is a contract between you and your employer in which you agree to place a specified amount of future wages into a dependent care account.

(2) The agreement must contain:

(a) Your Social Security number;

(b) The names and birth dates of the dependents you will cover with DCAP; and

(c) Medical, family and other information DRS needs to administer DCAP.

Except as provided in WAC 415-600-230, an SRA agreement cannot be changed.

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NEW SECTION
WAC 415-600-230   May I change the terms of my SRA during the plan year?   The salary reduction agreement (SRA) cannot be changed during the plan year unless you have a qualifying change in status as defined in WAC 415-600-240. If you have experienced a qualifying change in status and need to change or revoke your SRA, you must fill out a new SRA form and submit it to DRS. Such changes require approval by DRS. An explanation of the requested change may be required.

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NEW SECTION
WAC 415-600-240   What is a qualifying change in status?   The following are changes in status for purposes of DCAP:

(1) Marriage;

(2) Divorce or legal separation;

(3) Death of a spouse or dependent;

(4) Addition of a dependent to the eligible employee's household, such as the birth or adoption of a child;

(5) Termination of spouse's employment;

(6) Employment of an unemployed spouse;

(7) A change in the work hours of the eligible employee or spouse that significantly alters the need for dependent care;

(8) A change in dependent care provider;

(9) A change in dependent care provider cost (does not apply to relatives); or

(10) No longer use dependent care services.

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NEW SECTION
WAC 415-600-250   How much may I set aside in my dependent care account each plan year?   (1) The maximum amount that you may set aside during a plan year is:

(a) Two thousand five hundred dollars, if you are married and filing separately; or

(b) Five thousand dollars, otherwise. However, the total set aside by you and your spouse may not exceed five thousand dollars.

(2) If you are not married, the amount set aside may not exceed your earned income.

(3) If you are married, the amount set aside may not exceed the lesser of your earned income or your spouse's earned income.

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NEW SECTION
WAC 415-600-260   What is "earned income" for purposes of DCAP?   (1) Except as set forth in subsection (2) of this section, earned income for DCAP purposes includes wages, salaries, tips and other employee compensation, plus the amount of the taxpayer's net earnings from self-employment for the taxable year.

(2) If your spouse is either a full-time student or physically or mentally incapable of self-care, your spouse's earned income is deemed to be:

(a) Two hundred dollars per month, if you have one qualifying person for whom care is provided; or

(b) Four hundred dollars per month, if you have two or more qualifying persons for whom care is provided.

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NEW SECTION
WAC 415-600-270   May DRS limit the maximum salary reduction for highly compensated employees?   (1) DRS may decrease the salary reduction amount of certain participants to the extent necessary to ensure that the program does not discriminate in favor of "highly compensated employees." "Highly compensated employees" are determined by the nondiscrimination test in Internal Revenue Code sections 125 and 129 and any other applicable provisions of law.

(2) The amounts set aside by highly compensated employees who are subject to the particular nondiscrimination requirement shall be decreased pro rata.

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NEW SECTION
WAC 415-600-280   How will DRS process my salary reduction?   The salary reduction will be taken in equal amounts for each pay period during that portion of the plan year in which you participate.

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NEW SECTION
WAC 415-600-290   When does my participation in DCAP terminate?   (1) Your participation in DCAP terminates on:

(a) December 31 of the plan year, unless you reenroll during the open-enrollment period;

(b) The date you refuse a request for updated information, as set forth in subsection (2) of this section;

(c) The date the program is terminated by state or federal action; or

(d) The date you revoke your salary reduction agreement under WAC 415-600-230.

(2) You shall be deemed to have refused a request for updated information thirty days after a letter requesting such information is mailed to you by certified mail, return receipt requested. The letter must notify you of the consequences of a failure to provide such information.

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DEPENDENT CARE EXPENSES
NEW SECTION
WAC 415-600-310   Do my expenses qualify for DCAP reimbursement?   (1) You may be reimbursed for dependent care expenses for the well-being and protection of a qualifying person, provided that the expenses are incurred to enable you and your spouse to be gainfully employed.

(a) Only expenses incurred on days you work may be reimbursed.

(b) If you are married, only expenses incurred on days you and your spouse both work may be reimbursed, provided that:

(i) If your spouse is a full-time student, expenses incurred on days you work and your spouse attends school may be reimbursed.

(ii) If your spouse is physically or mentally incapable of self-care, expenses incurred on days you work may be reimbursed.

(2) You may be reimbursed only for expenses incurred during the plan year for which you are enrolled. If you enroll after January 1 of the plan year, you may be reimbursed only for expenses incurred from the date DRS approves your salary reduction agreement.

(3) Only the cost of care may be reimbursed. The following expenses may be reimbursed, subject to the limitations stated in subsection (4) of this section.

(a) Expenses for care of a qualifying person in the participant's home, including feeding, administration of medicine, general supervision, and incidental household services; and

(b) Expenses for care of the following qualifying persons outside the participant's home:

(i) A dependent of the participant, age twelve or younger, with respect to whom the participant is entitled to a federal tax deduction.

(ii) Any other qualifying person who regularly spends eight hours or more per day in the participant's home.

(4) The following limitations apply to the reimbursement of expenses:

(a) Expenses for food, clothing, and entertainment are reimbursable ONLY IF these expenses cannot be separated from the cost of care.

(b) Expenses for care in a dependent care center (as defined in Internal Revenue Code (IRC) Section 21(b)) are reimbursable ONLY IF the facility complies with all federal, state, and local laws and regulations.

(c) Expenses for schooling are reimbursable ONLY IF:

(i) The schooling is at a prekindergarten level; and

(ii) The expenses cannot reasonably be separated from the cost of care.

(d) Payments to a person for whom you or your spouse may claim a dependency exemption for federal income tax purposes are not reimbursable.

(e) Payments to a nondependent child, as defined in IRC Section 151 (c)(3), are not reimbursable unless the child will be age nineteen or older by December 31 of the plan year.

(f) Summer camp expenses, when the child stays overnight, are not reimbursable.

(g) Amounts paid by an employer of your spouse or by an educational institution where your spouse is enrolled as a student are not reimbursable.

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REIMBURSEMENT OF DEPENDENT CARE EXPENSES
NEW SECTION
WAC 415-600-410   How do I request reimbursement for DCAP expenses?   (1) You must use the DRS reimbursement claim forms to submit claims for dependent care expenses.

(2) DRS will mail a supply of reimbursement claim forms to you upon confirmation of your enrollment. You can obtain additional forms by phone or on the DRS website, at http://www.wa.gov/drs/forms/.

(3) You may submit reimbursement claim forms as often as you wish.

(4) The reimbursement claim form must be completed, signed, and accompanied by bills, invoices, receipts, or a statement signed by the provider. The department cannot accept canceled checks or credit card statements as verification. All documentation must show the amounts of dependent care expenses and periods of service for which you seek reimbursement.

(5) DRS must receive claims for expenses incurred during a given plan year on or before March 31 of the following year.

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NEW SECTION
WAC 415-600-420   How does DRS process DCAP reimbursement claims?   (1) DRS reviews DCAP claims each week during the plan year.

(2) If funds are available in your dependent care account at the time the claim is reviewed, DRS will reimburse your claim.

(3) If funds are not available at the time your claim is reviewed, DRS will reimburse your claim when money becomes available in your dependent care account. You do not need to resubmit your claim.

(4) You will not be reimbursed for claims that exceed the amount that you set aside for the plan year. You may not resubmit these claims in subsequent plan years.

(5) Unpaid expenses are never your employer's responsibility.

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NEW SECTION
WAC 415-600-430   How will I know how much money is available in my dependent care account?   (1) DRS will send you a quarterly statement showing your account activities and balance for the quarter.

(2) Shortly after March 31 following the close of a plan year, DRS will send you a written statement showing the reductions from salary and amounts reimbursed through the end of the plan year.

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NEW SECTION
WAC 415-600-440   What happens to the balance of my DCAP account at the end of the plan year?   If funds remain in your dependent care account after all timely claims for the plan year have been reimbursed, you will forfeit these funds. Unused funds cannot be carried forward to your dependent care account for the subsequent plan year.

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NEW SECTION
WAC 415-600-450   What happens to the money in my dependent care account if I terminate employment?   You may be reimbursed for dependent care expenses incurred during the remainder of the plan year to the extent you have money in your dependent care account. In the event of death, your personal representative may submit claims on your behalf.

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DCAP ADMINISTRATION
NEW SECTION
WAC 415-600-510   DCAP administration.   (1) Administered by department: The department of retirement systems (DRS) shall administer DCAP.

(2) Delegation of authority: DRS may delegate functions to be performed under this program to any designee with legal authority to perform such functions.

(3) Reliance upon documents: DRS and the employer may rely upon any document believed by them to be valid.

(4) Reliance on information: In administering the program, DRS may rely conclusively on all tables, valuations, certificates, opinions, and reports which are provided by its accountants, counsel, and other professionals.

(5) Binding nature of decisions: The DCAP program administrator is authorized to decide any matters concerning your rights under DCAP. Such decision shall be binding. If you disagree with the decision, you may write to the DRS director for consideration.

(6) Program amendments: DRS may amend DCAP at any time if the amendment does not affect the rights of the participants to receive eligible reimbursement.

(7) Communication: DRS will provide reasonable notification of the availability and terms of the program to eligible employees.

(8) Program document: The DCAP program document consists of chapter 415-600 WAC and RCW 41.04.600 through 41.04.645.

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NEW SECTION
WAC 415-600-520   What are the limits on my rights under DCAP?   (1) You have no claim to any asset of your employer, except as expressly provided by DCAP.

(2) The establishment of any administrative practice shall not vest you with any right not expressly provided by DCAP.

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MISCELLANEOUS
NEW SECTION
WAC 415-600-610   Can my rights be assigned or attached?   Your right to receive any reimbursement cannot be assigned or attached.

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NEW SECTION
WAC 415-600-620   Who is responsible for determining my tax liability?   You are solely responsible for determining your tax liability under DCAP.

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NEW SECTION
WAC 415-600-630   What if I receive more reimbursement than I should?   If you receive money from DCAP that is not eligible for reimbursement of dependent care expenses as defined in WAC 415-600-110(2), you must indemnify the employer as follows. You shall pay the employer the amount of federal income tax and Social Security tax that the employer would otherwise have withheld and paid on the money as regular compensation.

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Washington State Code Reviser's Office