409a & Paid Annual Leave Cash-outs

[Guest kimvb]

We have a Paid Annual Leave (PAL) Sell plan that allows employees to sell accumulated PAL. Employees are allowed to sell PAL as long as they have a balance of 80 hours.

Does this type of benefit run afoul of the Section 409a code?

I would appreciate any thoughts on this subject.

[Guest AEA]

I have spoken with people who are landing on both sides of the 409A debate (some say it does and are amending their policies while others are sticking to the argument that it is a bona fide vacation/sick leave policy and 409A does not apply). I have not made a decision myself and am hoping that the new guidance says something. If it doesn't, I am planning on taking a hard look at each of these policies.

[Kirk Maldonado]

Why don't either (or both) of you submit a comment to the IRS on this point? Because they've indicated that the final regs won't be out until next fall, there's a good likelihood that they would be receptive to addressing this issue even though the deadline for submitting comments is passed.

[Everett Moreland]

PLR 200450010, at ftp://ftp.irs.gov/pub/irs-wd/0450010.pdf, provides some guidance

[Guest mjb]

Most state and local govts in the east allow employees to receive lump sum payments of accumulated vacation and sick leave upon termination which are authorized under state law or collective bargaining agreements. Long service employees frequently receive payments equal to a year's salary or more. Including them as deferred comp plans under 409A would open up a can of worms for the politicans.

[Guest AEA]

I submitted this question for the ALI-ABA Spring Update webconference. Dan Hogan made a comment that sounded like the IRS would not include these types of plans under 409A if they otherwise met the constructive receipt, economic benefit, and one other rule that I did not write down fast enough. Anyone catch the third "theory"?