Payroll deduction schedule outside of plan year

[Guest Jeremy_Davis]

We have a client who has a plan year beginning 12/1.

They have a paydate in December that they are considering a December payroll, however the dates the employees work for that December 1st paycheck are prior to the beginning of the plan year, so for the employee that worked 11/15 to 11/30 - since the check is issued in December, the employer wants to take the first payroll deduction out of that 11/15-11/30 time period that the employees worked instead of the 12/1 - 12/15 dates.

It seems all wrong to me to allow payroll deductions for a period that is clearly out of the plan year to be applied to the current plan year's cycle...

Any thoughts on this or cites you can provide will be GREATLY appreciated!

[Guest CKrum]

What you are working with sounds similar to 'cash basis' accounting where expenses and income are accounted for when they are paid and received instead of the period they might pertain to.

It's my understanding that a Cafeteria Plan is not really concerned with the timing of the funding of the plan as long as the expenses that are being paid were incurred during the plan year. Weekly and Bi-weekly payrolls are notorious for this situation because of the annual 'creep' of the check dates from year to year.

[LRDG]

IRS officials I talked with about this indicated it is not an issue with respect to Sec. 125 compliance, possible violation of constructive receipt. One would have to conclude that because this is such a long standing issue, existing since the inception of 125's for a significient number of plans, with IRS taking no steps to address the issue formerly in regs or informerly when questioned, and IRS's continued silence on the topic for 20+ years, must consider it irrelevant.

Ckrum's reply is similar to explenation I recall from IRS officials.

[Guest Jeremy_Davis]

Thank you both for your answers, they make good sense and I agree with your reasoning.