Compensation

[Guest Hartnett123]

Is third party sick pay included as "compensation" when determining the employer contribution for the plan year?

Can an employee make deferrals from third party sick pay?

Bottom line: Is third party sick pay included when determining an employee's compensation for the year?

Thanks!

[Harwood]

1. If Compensation starts with W-2 compensation - and the arrangement with the Third Party carrier is such that the payments get on the Employer's W-2 - then Third Party Sick Pay is part of Compensation.

2. If Compensation throws out taxable fringe benefits and taxable welfare benefits, then Third Party Sick Pay might be excluded here. Does anyone out there have an opinion on this?

3. 401(k) withholding by the Third Party is difficult. Any taxes withheld by the Third Party Insurance Carrier are remitted by the carrier to the government agencies [though the Employer must pay the Employer portion of FICA and get the wages on the Employer's W-2]. I suppose the Third Party could remit 401(k) deferrals to the Trust.

[My answers are based on first-hand payroll experience that ended a decade ago. These days, it might be routine for Third Parties to withhold and remit deferrals]

[Guest rierie23]

just curious-if 3rd party sick pay is ONLY item on w-2, participant got no pay for work, would you include it? in the past i have not.

[Harwood]

People with sick pay only would be like terminees with on-going severance payments. They have Compensation that may meet the definition of Plan Compensation, however, they have no hours of service during the year. I am unsure exactly how to treat them.

[Guest Hartnett123]

Thanks for your thoughts.

What I have is straightforward 401(k) plan. We have two participants who received Third Party Sick Pay during the year - one for whom that was the only income reported, and the other who received it during a portion of the year.

As for making deferrals against it, I guess I'm more concerned about ADP. The participants did not try to defer directly from their TPSP, but one did make deferrals during the year. I'm just trying to figure out whether their compensation is grossed up, and therefore their ADP reduced, by including the TPSP.

Then what comes to mind is, what if the plan were a Safe Harbor? Since there is no hours requirement, my guess would be that the TPSP would count . . . ?