USERRA

[Guest sritts]

Can a participant submit a check to the trust to make up for deferrals missed while on active duty or must the deferrals come from current compensation upon return to work?

[QDROphile]

If the IRS knows or cares, it is not saying, at least in not reliable guidance.

[Belgarath]

Interesting question. I agree with Qdrophile that the guidance isn't terribly up-front on this. If you look at the preamble to the final DOL regs, published in the Federal Register on 12-19-05, page 75280, you'll see reference to the proposed regs from the IRS regarding current deferrals made from "differential pay." Essentially, as I understand it, some employers continue to pay a portion of the employee's salary while they are on active duty. If so, then this would have allowed current deferrals for the differential pay. The actual final DOL regs dealing specifically with pension plans, sections 1002.259 through 1002.267 do not address this.

I'd say that the person on active duty cannot submit a current deferral check - this can only come during the permissible make-up period once re-employed. And as I recall the HERO act, although it applies to IRA contributions, wouldn't permit deferrals to a 401(k) from normal military pay.

[Guest sritts]

Can a participant submit a check to the trust to make up for deferrals missed while on active duty or must the deferrals come from current compensation upon return to work?

Let me clarify; Joe goes on active duty from 1/1/05 - 10/1/06. He wants to make up deferrals he missed while on active duty. Can he submit a personal check now that he has returned to work for the make up deferrals or do they have to come out of current pay?

[Belgarath]

They have to come out of current pay.

[QDROphile]

Since money is fungible, you should have the money come as deferral of pay, not necessarily limited to pay this year. Otherwise you cannot be certain about compliance.

[PLAN MAN]

I agree. Make-up deferrals should come from current pay. Otherwise, you have after-tax money in the plan and this would make distributions more difficult.