Disability Payments as W2 Compensation

[Guest SWH]

Have an employee that has regular wages, ST disability wages, and LT disability wages all in the same calendar year.

Plan states that comp is W-2 wages and that employer contribution will be made for the year, if the only reason that you were not employed at end of year is due to disability.

My question, is how much of the disability payments do I actually count as compensation?

I have no problem with including ST disability in income b/c it covers "temporary" absences. However, LT disability seems like it would be compensation earned after a termination of employment.

FYI. Company pays all disability premiums to insurance company so benefits are taxable. The agreement with the insurance company requires the employer to pick up the disability payments on the W-2s and pay FICA matching.

Any thoughts would be greatly appreciated! I'm talking myself into circles now.

[GBurns]

If a W2 is something that is only given to employees and FICA matching is related to employee wages, then the person is not a terminated employee.

[Guest SWH]

But, W-2s are not only given for employment wages. You can be a terminated participant and get a severance package that is taxable for W-2 wages. These monies are not counted for compensation purposes in retirement plans.

So, I guess my question is, would I consider the LTD the same as I would consider severence packages?

(I'm picking on the LTD b/c participant went into total and permanent disability shortly after LTD went into effect. Didn't state that clearly in first post.)

But, since I have to make a PS contribution to him for the year (due to disability), do I count all of the LTD as comp for purposes of calculating the contribution?

I don't think that I would.

[GBurns]

I strongly disagree. Severance is employment related compensation whose calculation is based on wages and service etc. Severance packages are for terminating employees as part of their agreement to terminate, they are not for terminated employees. People who are being terminated as opposed to people who already have been terminated. It might be delivered upon termination or shortly after, but that is an irrelevant timing issue.

In any case, if the Plan document says W2 wages is countable compensation, How can you selectively choose to ignore the amount that is clearly on the W2 and taxed as being wages/earned compensation at that?

If instead the insurance company issued a 1099, then I could agree to not include it, but a W2 from the employer is a W2 to an employee.

[K2retire]

If instead the insurance company issued a 1099, then I could agree to not include it, but a W2 from the employer is a W2 to an employee.

I've always been told that is the determining factor.

[QDROphile]

Since the plan has recently been amended to comply with the section 415 reguations, great attention was given to such details and the plan will have provisions that describe what compensation is included relative to termination of employment. The trick may be to detetmine emploment status.