Eligible Compensation

[Nassau]

If compensation is earned in the last pay period for the year but not paid until the next year, which year would this compensation fall under?

Can someone provide me with the actual Section of the law where I can find the answer?

[chc93]

We have generally used what's reported on the W-2's, since, presumably, the W-2's, payroll, tax accounting, etc all coincide. We've had plans with semi-monthly payroll, but "pay date" is 5 days after the 15th or end-of-month. The company included the Dec 31 pay period (paid on Jan 5) in the next year's payroll. So the "plan year" compensation that we've used goes from Dec 31 to Dec 15 pay periods. We've also had bi-weekly payrolls and have followed the same reasoning. Most important to being consistent year-to-year.

[Tom Poje]

most important is to follow the section of the document. it really shouldn't be a pick or choose. prior to the amendment requirement you had a little more leeway.

this is generally found in the "Amendment for the final 415 language" (not sure where it shows up in a new document)

all plans had to be amended for this, so it has to exist.

below is sample language from one such amendment. the default is to include in the year of W-2.

............................

Administrative delay ("the first few weeks") rule. 415 Compensation for a limitation year shall not include, unless otherwise

elected in Section 2.2 of this Amendment, amounts earned but not paid during the limitation year solely because of the timing of

pay periods and pay dates. However, if elected in Section 2.2 of this Amendment, 415 Compensation for a limitation year shall

include amounts earned but not paid during the limitation year solely because of the timing of pay periods and pay dates, provided

the amounts are paid during the first few weeks of the next limitation year, the amounts are included on a uniform and consistent

basis with respect to all similarly situated participants, and no compensation is included in more than one limitation year.

[ETA Consulting LLC]

There is certain flexibility offered under the Regulations. In all instances, you begin with the definition in Section 415 of the Code which provides for an "OPTIONAL" inclusion of amounts earned but not paid during the year. It's almost like an 'accrual method'. This has been the case for a while, but plans generally use "amounts actually paid" during the year as the basis. If you get paid on January 1st, then that is the first pay period of a new year.

The recent changes in the 415 regulations pertained to the last paycheck after termination of employment. This is where you have an issue with an employee who actual terminates in December and receives a check in January. So, inclusion in post-severance compensation in the employee's ability to defer is an entirely different standard (and based on relatively new regulations designed to deal with this specific issue).

So, you really have to look at the language in your plan (each plan) to determine how that plan measures compensation for various purposes. There really isn't a one size fits all since the regulations actually allows for the plan to choose a method within certain parameters.

Good Luck!