401(k) deferrals on imputed income

[Guest rlt4]

I have a 401(k) plan that uses W-2 as the definition of compensation for 401(k) deferral purposes, which would include imputed income such as GTL over $50,000. Technically, I believe based on the definition chosen in the plan document, deferrals should be allowed on imputed income, since it is included in the defintion of compensation. So, if a participant elects to defer 10% of compensation, the 10% should be calculated based on compensation that includes imputed GTL income. Practically speaking, how are deferrals taken from imputed income? Do most employers impute GTL income on a payroll by payroll basis, so that deferrals are made on the correct compensation?

[mbozek]

I have a 401(k) plan that uses W-2 as the definition of compensation for 401(k) deferral purposes, which would include imputed income such as GTL over $50,000. Technically, I believe based on the definition chosen in the plan document, deferrals should be allowed on imputed income, since it is included in the defintion of compensation. So, if a participant elects to defer 10% of compensation, the 10% should be calculated based on compensation that includes imputed GTL income. Practically speaking, how are deferrals taken from imputed income? Do most employers impute GTL income on a payroll by payroll basis, so that deferrals are made on the correct compensation?

Pardon my ignorance but is GTL Group term life?

[Guest rlt4]

I have a 401(k) plan that uses W-2 as the definition of compensation for 401(k) deferral purposes, which would include imputed income such as GTL over $50,000. Technically, I believe based on the definition chosen in the plan document, deferrals should be allowed on imputed income, since it is included in the defintion of compensation. So, if a participant elects to defer 10% of compensation, the 10% should be calculated based on compensation that includes imputed GTL income. Practically speaking, how are deferrals taken from imputed income? Do most employers impute GTL income on a payroll by payroll basis, so that deferrals are made on the correct compensation?

Pardon my ignorance but is GTL Group term life?

Yes, I meant group term life.

[Guest Lane]

Any thoughts on this post from 2009? This would seem to be a common issue, as many plans use W-2 compensation but don't always exclude fringe benefits. Perhaps no deferral is required because there is no cash from which to make a "cash or deferred" election.

[QDROphile]

Elephant in the room. But most people don't recognize the elephant. If the elephant is pointed out to them, they still don't want to discuss it.

If we had real enforcement, even the protoype junkies would be in trouble. But everone is relatively safe as long as everyone is relatively happy.

[GMK]

This article (3rd point under Qualified Plans):

http://benefitslink.com/articles/guests/washbull091027.html

suggests that deferrals are to be made on imputed income. The compensation used to calculate deferral amounts is distinguished from the compensation from which deferrals are taken.

And I'd sure like to hear a few more details from Mr. QDROphile.

Edit to add this reference to the IRS's answer (item 12 on pages 11-12):

http://www.abanet.org/jceb/2009/IRS2009.pdf

[Guest Lane]

Great response. Thank you.

The IRS Q&A does not take into account that GTL imputed income is (I think) generally determined after the end of the year for purposes of W-2 reporting. This begs the question of when a deferral on this imputed income would actually be taken.

[MARYMM]

Great response. Thank you.

The IRS Q&A does not take into account that GTL imputed income is (I think) generally determined after the end of the year for purposes of W-2 reporting. This begs the question of when a deferral on this imputed income would actually be taken.

Many, if not most, payroll systems impute this income every pay period. If we waited until year end we would be unable to withhold FICA/Medicare taxes on some of this income (terminated employees) and have to pay the full 15.3%