VACATION PAY, SICK PAY..............

[Guest alan24]

DOES ANYONE KNOW WHETHER THE IRS WILL BE ADDRESSING THESE ISSUES SOON AND WHETHER PAYMENT WILL BE PERMITTED AFTER TERMINATION OF SERVICE?

[GBurns]

Turn off the "Caps Lock".

You are prbably not on the best Forum for this question.

What is the issue? Isn't cash out of unused Vacation and Sick Pay on termination a very normal thing especially in the public sector?

Where have you heard that it is an issue that might be or needs addressing?

[Guest alan24]

Perhaps this is a better way of phrasing the question:

Under the proposed regs 1.457-4(d) a deferral of compensation was allowed only if an agreement providing for the deferral was entered into before the begining of the month in which the amounts would be otherwise paid or payable and the participant is an employee in that month. The final regulations purportedly allow, under the special rule, for elections to defer to be made after the beginning of the month for sick, vacation & back pay provided the vacation pay would otherwise have been payable before the employee has a severance from service.

What is the case for an employee whose termination date is June 30, he severs his employment as of that date, but his accumulated sick pay, etc. is included in his final paycheck which is not paid to the now terminated employee until the next pay period which would be in July, due to administrative requirements? If he is entitled to the pay as of his date of termination, is this sufficient to deem the accumulated sick pay, etc. as "payable" before the severance from service?

[GBurns]

I do not see your issue. The vacation or sick pay was payable before the severance, which is why its there. Just like his final paycheck it is paid after termination. You could not pay severance or a final paycheck until after a termination anyhow, so what's the difference that you see? You pay the severance and back pay etc etc all after termination because they are "payable", which is the same as 'earned" and because that is the only time that it could be paid.

[Guest AEA]

I was wondering about guidance also! Rumor had it that guidance would come out with the new 415 rules, but I have not heard anything about them either.

The issue comes from what the IRS means by payable. The example given in the regulations makes it sound as if the vacation amount needs to be PAID before the severance event.

"G will separate from service on January 17, 2004, and elects, on January 4, 2004, to defer G's accumulated sick and vacation pay (which totals $12,000) that is payable on January 15, 2004.

Conclusion. G may elect before January 15, 2004, to defer the accumulated sick and vacation pay under the eligible plan, even if the election is made after the beginning of January, because the agreement providing for the deferral is entered into before the amount is currently available and G does not cease to be an employee before the amount is currently available."

Perhaps I am missing something, but most employers do not make accumulated vacation payable to a terminated employee before his or her last day of employment. The amount is rarely paid until the person's last pay check, at which time, the person is no longer an employee. The example implies that the employer would have to pay the accumulated vacation and sick leave and contribute it to the plan's trust BEFORE the employee terminates employment, which most employers are not interested in doing.

The National Association of Government Defined Contribution Administrators has asked that the rule be relaxed to allow the actual transfer to take place within a reasonable time after the election (which would be required before termination), including the end of the next pay period.

Anyone else hear anything?

[Guest kjk3]

With regards to the FICA taxation of 403(b) plans.....the recent temporary regulation TD 9159, seems to indicate that employer contributions of accumulated, unused sick and vacation pay would now be subject to FICA taxation. Would this type of special pay arrangement, upon retirement or termination of employment fall under this regulation?

[Guest Mpowers]

DOES ANYONE KNOW WHETHER THE IRS WILL BE ADDRESSING THESE ISSUES SOON AND WHETHER PAYMENT WILL BE PERMITTED AFTER TERMINATION OF SERVICE?

YES...contributions can occur now after retirement if considered contributions area an employer contribution and mandatory.