"Special Pay" Plans

[vebaguru]

Has anyone run across "special pay" plans? They appear to be a simple cross-tested profit sharing plan (established by the employer, not by employee election) to which contributions are made by a governmental employer upon the employee's retirement.

The one-time contribution is equal to the lesser of the employee's conversion pay (accumulated benefits and leave not taken such as sick pay, vacation pay, etc) or the 415 limit.

The reason for undertaking such an arrangement is apparently to save on FICA, Medicare, FUTA, SUI, SDI and Workers' Compensation taxes and premiums. Employees still can receive the money anytime they wish since they are beyond their retirement date under the plan, but it saves the payroll taxes for both employer and employee.

[mbozek]

There was thread under govt plans about 6 months ago on this issue under the topic of Qualified severance plans where the employer would transfer an employees accumulated vacation or disability leave as an employer contribution to a qualified plan to avoid FICA taxes and the employee would be able to rollover or leave the money in the Plan. I seem to remember it was a program initiated by govts in Florida- some employee complained about it. I think the provider obtained a determinaton letter from the IRS. The plan in question was a discretionary ps plan.

[Ken Davis]

I'm aware that vendors are using both 401(a) plans and mandatory 403(B) plans to accomplish this.