Transit Benefits Issues and Opportunities for New Fare Payment Systems

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1 Transit Benefits Issues and Opportunities for New Fare Payment Systems Larry Filler President LF Consulting 2010 APTA Fare Collection Workshop

2 Commuter Benefits (IRC Section 132(f)) Overview Employer-provided benefit Transit/Vanpool, Commuter Parking $230/month ($2,760/year) for each expense Pretax and/or Subsidy Pretax savings Employers save on FICA (7.65%) Employees save on taxes (up to $1000 or more) Bicycling Reimbursement - $20/month

3 Market Characteristics Growing Availability 46% of CBD employers in NY, Chicago & SF* Growing Awareness 75% of CBD employers in NY, Chicago & SF* Over 1 million employees participate (est.) Over $1 billion annually in transit benefits used (est.) Available in all major metropolitan transit markets * 2009 Commuter Impact Survey, TransitCenter, Inc.

4 Value to Transit Operators Majority of transit riders are commuters From 50% and to over 60% in major transit markets* Transit benefits used by large segment of transit commuters in many markets Shifts purchases to higher cost passes and larger purchases at one time Potential to lower revenue collection costs Incentive to ride - 18% of users previously drove to work** * FTA TPMS; APTA s Profile of Public Transportation Passenger Demographics, May 2007 ** The Impact of Commuting on Employees, Businessweek Research Services and TransitCenter, Inc., February 2008

5 Benefit Issues that Impact Fare Collection Product Characteristics IRS Compliance Requirements Benefit Process Issues General Issues

6 Product Characteristics Legacy Products Transit Passes Vouchers Electronic Products Debit Cards - Prepaid and Reloadable Smart Cards Direct Crediting

7 IRS Compliance Requirements Transit benefit must be used for transit expenses only Benefit use must be substantiated as a cash reimbursement except for: Transit Passes / Vouchers Terminal Limited Debit Cards Smart Cards where transit benefit useable only for transit Monthly caps for each benefit must be strictly observed

8 Debit/Smart Card- IRS Rev. Rul Debit Cards Transit benefit funds can only be used for transit expenses Self-substantiated if limited to point of sale devices that only sell transit fares ( terminal limited ),e.g., MID filtered cards MCC limited cards not self-substantiating Smart Cards Transit benefit funds can only be used for transit expenses Self-substantiated if limited to pay for transit fares only or used as fare media Effective date: January 1, 2011

9 Benefit Process Issues- Examples Account Set-up Manual versus file upload Funding system approach Threshold Timing Pre-authorization process Termination coordination between benefit program and transit account Benefit amount lower than fare 2 cards Another payment method

10 General Issues Customer service hand offs Double Enrollment Benefit Enrollment Transit Operator Account Privacy and Security Risks and Liabilities Roles and Responsibilities

11 Open Loop Bank Card Systems Presents new issues New parties General use cards Handling of transit benefit funds

12 Transit Benefit Friendly Objectives Accommodate major transit benefit products Reduce revenue collection costs compared to general rider Encourage benefit riders to use most costeffective fare payment mechanism Achieve smooth hand-off between benefit provider and fare collection system Provide benefit users with a positive experience from benefit enrollment to fare payment

13 Where We Are Today Benefit users largest segment of commuters in many markets Closed loop payment systems can become fully transit benefit friendly but are not there yet Open loop bank card payment system presents new issues Need for collective action among stakeholders to take advantage of transit benefits

14 Thank You! Questions? Larry Filler