Constructive Receipt of Transferred Vacation Benefits

[Christine Roberts]

Is anyone aware of an IRS ruling in re: transfer of accumulated vacation benefits from one employer to another causing constructive receipt of the vacation benefits?

[Kirk Maldonado]

Where is the constructive receipt issue? Specifically, how does the transfer of the "service credits" cause a constructive receipt issue? Unless the employee has a choice of cashing out the amount rather than the amount being transferred to the other employer, I don't see a constructive receipt issue here.

[KIP KRAUS]

Christine:

I agree with Kirk. Typically vacation is earned or granted sometimes on a person’s employment date. Never has constructive receipt been an issue in my experience, and vacation time is taxed when used so why it would ever be considered constructive receipt? I can’t imagine. Even if vacation can be redeemed for cash I would say it is taxable income at that the time it is paid out. In fact many employers have a policy of paying out accrued vacation time at an employee’s termination and this policy is not considered constructive receipt. In addition, some employers allow employees to cash out a certain amount of accrued vacation at the end of their fiscal or calendar year. This policy is also not considered constructive receipt.

[Sheila K]

I'm with Kirk and KIP! We just had a big scare over this as we re-wrote our Employee Handbook. One "expert" told us we could not pay out our vacation (upon separation) at less than 100%. It caused a lot of sleepless nights until we were able to use another source to speak with a DOL rep.

[Christine Roberts]

Thanks for all the comments.

I agree with your conclusions.

A client had "heard" about the constructive receipt problem and though it made no sense to me I wanted to canvass other practitioners to see if there was some new ruling or other development I had missed.

[GBurns]

Sheila K

Is there anything that you can share with us about what the DOL person said?

[Sheila K]

GBurns:

We are working with our state Employers Council to re-write our handbook. One of their staffers talked to a 20-yr DOL employee who told him that if the word "accrual" was used in a PTO policy, then the time was "owed" to the employee and could not be paid out at less than 100%, nor could it be lost or decreased upon separation. The Council president was fortunately able to speak to a "higher-up" at DOL who was utterly astounded that someone would give that kind of misinformation. Needless to say, the first contact is off the list of "sources"!

[GBurns]

Thanks for the info and I hope that it seves as a warning to readers who seek info from Regulators or who read articles by so called "experts" etc.

It has always amused me when I read articles etc that quote things that some employee of the DOL or IRS is supposed to have said. Why anyone gives comments made by some unknown employee has always puzzled me? They do not know the training level, the competence or the experience of the person but yet are willing to accept the statements made as "gospel".

A 20 year employee might have been in the Publications Disbursement Center for 10 years and in Communications for the remaining 10 years. That is length of service not experience.

[mbozek]

I dont know why the DOL is the source of knowlege about vacation plans since vacation benefits are considered wages subject to state laws, not ERISA. Most states (NY) allow an employer to determine its policy of paying accrued vacation benefits upon termination of employment. However, in CA ( right Kirk?) employees accrue vacation time thoughout the year which must be paid upon termination. In other words the vacation pay vests. CA employers avoid this requirement by adopting VEBAs for vacation benefits which permit forfeiture upon terminaton since state laws are preempted by ERISA from applying to a VEBA.