disability payments in 401k

[FJR]

Does anyone know how to advise the following:

Employer has a long term disability policy where an employee is receiving disability payments. The employee is a participant in the 401(k). The LTD plan states that they will pay the employer an extra benefi to be deposited into the plan. The amount is 4% of monthly earnings.

1. How can this be put into the plan as a salary reduction - pre tax contribution?

2. How is it reported?

3. Does this violate any ERISA laws. Again this amount is paid by the insurance co. in addition to the LTD payments

It doesn't seem to be reported on his W-2 as a deferred payment. Should it?

Any help would be appreciated

[david rigby]

Is the disability payment paid by a plan (insured or self-insured), or by the employer? If paid by employer, is the disabled employee receiving a W2 for this? (Not sure if this matters, just asking.)

[FJR]

The disability premiums are paid by the employer.

The contribution is being paid by the insurance co. and is paid to the employer as an extra benefit to be paid into the plan on behalf of the participant

[MGB]

I would think that the employer would recognize it as income. Then take a deduction for paying it into the plan.

A DC plan is allowed to have "deemed compensation" for disabled participants to allow an employer contribution. (See 415©(3)©.) It must be the rate of pay when they went on disability. (Note that EGTRRA just changed to also include this in an employer's aggregate compensation for the base to apply 25% limitations to.) However, this can only be used for NHCEs.

Now, is it EE comp and then deferred? Gray area. I'd be more inclined to call it an employer contribution. But, what if there are no profit sharing contributions allowed? I guess I've convinced myself that it is deferred comp. However, prior to 2002, I don't know how you could do a 100% deferral. If it is a deferral, then who pays the FICA?

I seem to have raised more questions than I've answered.