Defer from Maternity pay?

[MSN]

Are participants able to defer from maternity pay? Does it matter if the payment is made through the sponsor or from a STD provider?

[Laura Harrington]

What is the definition of compensation in the plan document?

[Steelerfan]

Does it matter if the payment is made through the sponsor or from a STD provider?

It normally would as a practical matter since the provider's payroll wouldn't likely be set up to handle deferrals into the plan

[MSN]

Laura-

Comp is 415 Safe Harbor

[Laura Harrington]

By "415 Safe Harbor" I assuming that you are referring to the safe harbor definition of compensation under Treas. Reg. §1.415©-2(d)(2).

This definition of compensation, referred to as simplified compensation, specifically states that the definition of compensation only includes the items listed in paragraphs (b)(1) or (2) of Treas. Reg. §1.415©-2. Therefore, it excludes the items listed in paragraphs (3) through (7), which would normally be included in the 415 definition of compensation.

Paragraph (3) refers to medical and disability benefits includable in gross income under IRC §104(a)(3), §105(a) or §105(h).

Since this paragraph is not part of the safe harbor definition under Treas. Reg. §1.415©-2(d)(2), if the maternity disability benefits you describe fall under IRC §104(a)(3), §105(a) or §105(h), that they are not included in the 415 safe harbor definition of compensation. If the plan is using that definition of compensation for deferral purposes, then an employee should not be allowed to defer from that pay.

Treas. Reg. §1.415©-2 Compensation.

(a) General definition. Except as otherwise provided in this section, compensation from the employer within the meaning of section 415©(3), which is used for purposes of section 415 and regulations promulgated under section 415, means all items of remuneration described in paragraph (b) of this section, but excludes the items of remuneration described in paragraph © of this section. Paragraph (d) of this section provides safe harbor definitions of compensation that are permitted to be provided in a plan in lieu of the generally applicable definition of compensation. Paragraph (e) of this section provides timing rules relating to compensation. Paragraph (f) of this section provides rules regarding the application of the rules of section 401(a)(17) to the definition of compensation for purposes of section 415. Paragraph (g) of this section provides special rules relating to the determination of compensation, including rules for determining compensation for a section 403(b) annuity contract, rules for determining the compensation of employees of controlled groups or affiliated service groups, rules for disabled employees, rules relating to foreign compensation, rules regarding deemed section 125 compensation, rules for employees in qualified military service, and rules relating to back pay.

(b) Items includible as compensation. For purposes of applying the limitations of section 415, except as otherwise provided in this section, the term compensation means remuneration for services of the following types—

(1) The employee's wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the employer maintaining the plan, to the extent that the amounts are includible in gross income (or to the extent amounts would have been received and includible in gross income but for an election under section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b)). These amounts include, but are not limited to, commissions paid to salespersons, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan as described in §1.62-2©.

(2) In the case of an employee who is an employee within the meaning of section 401©(1) and regulations promulgated under section 401©(1), the employee's earned income (as described in section 401©(2) and regulations promulgated under section 401©(2)), plus amounts deferred at the election of the employee that would be includible in gross income but for the rules of section 402(e)(3), 402(h)(1)(B), 402(k), or 457(b).

(3) Amounts described in section 104(a)(3), 105(a), or 105(h), but only to the extent that these amounts are includible in the gross income of the employee.

(4) Amounts paid or reimbursed by the employer for moving expenses incurred by an employee, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are not deductible by the employee under section 217.

(5) The value of a nonstatutory option (which is an option other than a statutory option as defined in §1.421-1(b)) granted to an employee by the employer, but only to the extent that the value of the option is includible in the gross income of the employee for the taxable year in which granted.

(6) The amount includible in the gross income of an employee upon making the election described in section 83(b).

(7) Amounts that are includible in the gross income of an employee under the rules of section 409A or section 457(f)(1)(A) or because the amounts are constructively received by the employee.

© Items not includible as compensation. The term compensation does not include--

(1) Contributions (other than elective contributions described in section 402(e)(3), section 408(k)(6), section 408(p)(2)(A)(i), or section 457(b)) made by the employer to a plan of deferred compensation (including a simplified employee pension described in section 408(k) or a simple retirement account described in section 408(p), and whether or not qualified) to the extent that the contributions are not includible in the gross income of the employee for the taxable year in which contributed. In addition, any distributions from a plan of deferred compensation (whether or not qualified) are not considered as compensation for section 415 purposes, regardless of whether such amounts are includible in the gross income of the employee when distributed. However, if the plan so provides, any amounts received by an employee pursuant to a nonqualified unfunded deferred compensation plan are permitted to be considered as compensation for section 415 purposes in the year the amounts are actually received, but only to the extent such amounts are includible in the employee’s gross income.

(2) Amounts realized from the exercise of a nonstatutory option (which is an option other than a statutory option as defined in §1.421-1(b)), or when restricted stock or other property held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture (see section 83 and regulations promulgated under section 83).

(3) Amounts realized from the sale, exchange, or other disposition of stock acquired under a statutory stock option (as defined in §1.421-1(b)).

(4) Other amounts that receive special tax benefits, such as premiums for group-term life insurance (but only to the extent that the premiums are not includible in the gross income of the employee and are not salary reduction amounts that are described in section 125).

(5) Other items of remuneration that are similar to any of the items listed in paragraphs ©(1) through ©(4) of this section.

(d) Safe harbor rules with respect to plan's definition of compensation—

(1) In general. Paragraphs (d)(2) through (4) of this section contain safe harbor definitions of compensation that are automatically considered to satisfy section 415©(3) if specified in the plan. The Commissioner may, in revenue rulings, notices, and other guidance of general applicability published in the Internal Revenue Bulletin (see §601.601(d)(2) of this chapter), provide additional definitions of compensation that are treated as satisfying section 415©(3).

(2) Simplified compensation. The safe harbor definition of compensation under this paragraph (d)(2) includes only those items specified in paragraph (b)(1) or (2) of this section and excludes all those items listed in paragraph © of this section.

(3) Section 3401(a) wages. The safe harbor definition of compensation under this paragraph (d)(3) includes wages within the meaning of section 3401(a) (for purposes of income tax withholding at the source), plus amounts that would be included in wages but for an election under section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b). However, any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in section 3401(a)(2)) are disregarded for this purpose.

(4) Information required to be reported under sections 6041, 6051 and 6052. The safe harbor definition of compensation under this paragraph (d)(4) includes amounts that are compensation under the safe harbor definition of paragraph (d)(3) of this section, plus all other payments of compensation to an employee by his employer (in the course of the employer's trade or business) for which the employer is required to furnish the employee a written statement under sections 6041(d), 6051(a)(3), and 6052. See §§1.6041-1(a), 1.6041-2(a)(1), 1.6052-1, and 1.6052-2, and also see §31.6051-1(a)(1)(i)© of this chapter. This safe harbor definition of compensation may be modified to exclude amounts paid or reimbursed by the employer for moving expenses incurred by an employee, but only to the extent that, at the time of the payment, it is reasonable to believe that these amounts are deductible by the employee under section 217.