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When choosing which Advisory / Oversight Committee model your fund will use, it is important to consider the IRS’s rule that:
“The recipients must be selected by an independent selection committee or adequate substitute procedures must be in place to ensure that any benefit to the employer is incidental and tenuous. The charity’s selection committee is independent if a majority of the members of the committee consists of persons who are not in a position to exercise substantial influence over the affairs of the employer.”
The model chosen has a significant impact on the tax efficiency of your fund, as well as the total overall cost of the program. Further, the choice of model determines the complexity of the Advisory / Oversight Committee’s responsibilities. The three most common choices are:
- Advisory / Oversight Model #1 – Broad Committee using 3rd party administrator. This model committee consists of members from different areas of the organization, particularly non-management. This is the most effective and responsive model, and enhances organizational buy-in to your program. Here an Advisory / Oversight Committee provides broad guidance and reviews periodic reports about the fund’s financial and administration activities performed by an independent third-party fund administrator. This approach enables an organization to solicit feedback and views throughout the organization using an application review and decision process that maximizes regulatory compliance. This method also enables the organization to reduce its legal liabilities while increasing participation in the program.
- Advisory / Oversight Model #2 – Individual or Department using 3rd party administrator. This model consists of an individual or small department-based committee. Here a single individual (or small group) provides broad guidance and periodic review. The individual or group reviews approval and denial decisions made by third-party fund administrator for compliance with program guidelines. This is a responsive model, but does not get the benefit of input and buy-in from the entire organization, unlike the broad committee model.
- Advisory / Oversight Model #3 – Day-to-Day Model. Here the Committee is responsible for reviewing all applications, and making all funding decisions in accordance with established program guidelines. The Committee members are agents of your organization, so you may be legally liable for their actions. Requirements for this model include:
- The Committee must maintain applicant confidentiality.
- The Committee must act in a non-discriminatory manner toward all applicants.
- The Committee must, according to the IRS, “consist[] of persons who aside from serving on the committee have no financial interest in the employer; or the committee consists of persons representing a broad spectrum of employees who understand that they are acting in a personal capacity as agents of the organization rather than as representatives of the employer.”
Even if the Committee meets these requirements, team members may still be uncomfortable with the notion of sharing their financial, medical, and personal information with other team members of your organization.
