initial eligibility and 30 day rule

[Guest George Chimento]

Assume that Joe X is designated as a participant in a voluntary deferral plan as of March 1, 2012. The 30 day "initial eligibility" rule permits him to elect to defer at any time up to March 30, and the deferral applies to wages earned after the election.

Can Joe X submit a deferral election on February 29 so that his March 1 wages are deferred? Or, does he have to wait for the window to start (on March 1) and then only defer wages from March 2 forward?

Common sense would say that an election before the start of the window is permitted, but the language does say "within 30 days after [initial eligibility]." Also, the preamble to the final regulations says that the rule is meant to follow the proposed regulations, and the preamble to the proposed regulations read as if only an election within the window is timely:

" ... a service provider newly eligible for participation in a plan may make a deferral election within the first 30 days of participation

in the plan, provided that the election may only apply to compensation with respect to services performed after the election."

My feeling is that there is no abuse by allowing elections before the start of the 30 day window, and that the 30 day rule was not intended to be a straight jacket denying deferral for the first day of eligibility. Any insight on this?

G

[gc@chimentowebb.com]

I received a helpful (informal) answer from IRS on this one.

An election prior to the start of the 30 day window is permitted, and IRS did not intend to limit elections just to the 30 day period starting on the first day of participation.

This was the sensible answer I hoped for. It's the only way in which pay earned on the first day of a participation period could be deferred.

G