403(b) plans and non-elective employer contributions

[Guest rlamoureux]

Does anyone know the specifics of a private letter ruling or a revenue ruling which states that if an employee is given the choice to accept retirement incentive pay as cash OR as a 403(B) contribution, then that payment is considered to be an elective contribution (as opposed to a non-elective employer contribution)? That's my understanding of the IRS position, but I have been unable to find an appropriate document to cite. Thanks in advance!

[mbozek]

Try constructive receipt under IRC 451/ regs. 1.451-1- If income is made available to a taxpayer , it is taxable income even if not actually received. If the Incentive pay is made avialable and employee electsd to contribute it to a 403(B) plan then its is wages for 403(B) purposes susbject to FICA tax because employee could have received the amount in cash.

[Guest bmurphy]

Does this still apply if the retirement incentive has been agreed to in a collective bargaining agreement between the district and its teachers? I have a client retiring who has been informed that he can shelter up to the IRC 415 limit of this incentive.

Thanks!

[Guest STLGiant]

MJB, it almost sounds as if this post concerning the one-time irrevokable election, e.g. if the employer states my package is $100K, $80K compensation and $20K deferred compensation, the $20K is non-elective Employer contribution and not subject to 402(g) limitations of $11K? If the employee has "choice" the $20K would be subject to 402(g), if it's a condition of employment there is no choice--theoretically?:confused:

[mbozek]

I dont know... I thought the one time election had to occur at the time of initial eligibilty for the agreement. Is this intitial eligibility?Also if employee is give the opportunity to elect an incentive payment as part of a voluntary separation then the employee will usually sign an agreemnt stating that the aceptance of the incentive pay/ severance is voluntary in order for the employee to validly waive his/her rights under ADEA... which indicates that the employee has a choice.