annual deferrals/excess deferrals

[Guest andrea16]

My governmental employer, who maintains a 457(b) DCP, asked if a deferral taken from one of our participant's pay on December 28th but not contributed to the DCP until January 5th should be considered a 2006 deferral or 2007 deferral for purposes of determining excess contributions for 2006.

Does anyone have any thoughts on whether the December 28th payroll deduction is an annual deferral when taken from the employee's pay or when actually contributed to the plan? Any citations would also be very appreciated.

[Everett Moreland]

2006.

1.457-2(b)(1):

"The amount of compensation deferred under an eligible plan is taken into account as an annual deferral in the taxable year of the participant in which deferred, or, if later, the year in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture."

1.457-8(a)(2)(ii):

"Amounts deferred under an eligible governmental plan must be transferred to a trust within a period that is not longer than is reasonable for the proper administration of the participant accounts (if any). For purposes of this requirement, the plan may provide for amounts deferred for a participant under the plan to be transferred to the trust within a specified period after the date the amounts would otherwise have been paid to the participant. For example, the plan could provide for amounts deferred under the plan at the election of the participant to be contributed to the trust within 15 business days following the month in which these amounts would otherwise have been paid to the participant."

[Guest andrea16]

Thank you.

[rcline46]

Everett, I love long responses that do not answer the question.

The answer is actually very simple. It is counted as a contribution in the plan for the year in which it shows on the participant's w-2.

[TLGeer]

Actually, it is reflected on the W-2 for the year for which it is a deferral.

Tom Geer

[Guest andrea16]

Thank you for the reply. I am still scratching my head. Is it a deferral when contributed to the trust or when deducted from the participant's paycheck, i.e. should it be noted on the W-2 as a 2007 or 2006 deferral (I would think the cash-basis accounting method would dictate 2006)? Thanks again.

[Everett Moreland]

2006, based on the regulations cited above

[TLGeer]

Absolutely agree.

Tom Geer