Vacation Purchase Program

[Chaz]

Is a vacation purchase program run outside of a cafeteria plan (and thus not subject to Code Section 125) whereby an employee can elect to purchase five additional vacation days considered "bona fide vacation leave" under 1.409-1(a)(5) and thus not deferred compensation?

[Chaz]

Does anyone have any thoughts on this?

[Chaz]

NO ONE has any comments on this??

[Locust]

I think it depends on the specifics. Does the vacation have to be used in the year in which it was bought? If so definitely not deferred compensation. But what if it can be accumulated and delayed until requested and never forfeited? I would think that would be deferred compensation - it's no different than deferred compensation except for the label - and wouldn't meet the basic 409A requirements.

[Chaz]

I agree about vacation days that can't be carried over being not subject to Section 409A. But regular (unpurchased) vacation that can be carried over is clearly(?) "bona fide vacation leave" under Section 409A. If a policy allowed participants to purchase and carry over, say, six months of vacation, that would probably not be "bona fide" and amounts deferred would be subject to 409A. But what about a policy that permits participants to purchase (outside of a cafeteria plan) and carry over, say, one week of extra vacation? Is THAT subject to Section 409A? We have a number of clients who are struggling with this issue and there doesn't seem to be any guidance on this anywhere.

[BeckyMiller]

Interesting that you have a number of clients struggling with this issue. I think it is the kind of thing we always have struggled with and will continue to do so - when does something lose its attributes of bona fide? I suspect that 20/20 hindsight will apply, if the only folks who do this are high paids who are looking at everyway they can find to defer income - trouble. If there is a fair cross section (another one of those phrases we struggle with) then maybe the client is o.k.

Good luck with your struggles.