If the December benefit for a retiree is paid 1-2-02 which year's 415

[Guest Iago1269]

The new limits will eliminate a large portion of my client's exisiting Non-Qualified payments; the client recoups the FICA taxes from the Non-Qualified benefit after submitting it to the IRS. THe dilemna is that as of 1-1-02, a percentage of the population will cease to have a Non-qualified benefit and there will be funds left to recoup from the employee. The dilemna is: Can we still apply the old limits to the 1-2-02 check becuase it reflects a December payment, or does the fact it is being paid after 12-31-01 bring it under the new regs?

[Mike Preston]

Interesting situation. If it is a calendar year plan, and if the 415 limits are referenced in the qualified plan, then the qualified plan will automatically provide bigger benefits on 1/1/02. However, if the 415 limits are spelled out in the plan, then there must be an amendment to the qualified plan before the benefits increase.

In either event, the client still has time to amend the plan before 1/1/02 to preclude a pop up in benefits under the qualified plan, specifically for those individuals who might be impacted by your FICA recoupment. However, this might not be the best thing to do if 401(a)(4) issues might pop up in the future.

One other thing you might want to check is whether the increase in the qualified plan will apply to those in pay status. It probably will, but it is worth checking anyway.

How many people do you have in this category? I can't imagine it is many people. If they began payments immediately upon retirement then they either: 1) started early in the year and there has been ample time for the recouping to complete; or 2) they started late in the year and they already paid a majority of their 2001 FICA taxes through payroll, leaving very little to be advanced, and therefore very little needing to be recouped. It is only a major issue for those who started late in 2001, but who were otherwise not on payroll, thereby potentially creating over $6,000 in FICA taxes due.

hth

mike