DOT = 12/31 Employed on Last Day of the Year?

[BG5150]

In order to receive a PS contribution:

An Employee must be employed with the Employer on the last day of the Plan Year.

So, if someone has a term date of 12/31, do they get an allocation.  I would say yes, because, generally, your term date is the last day you worked.  Therefore, a DOT of 12/31 means you worked on that day and, thus, you were employed on that day.

Your thoughts?

[K2retire]

I agree. This year, for businesses that were closed on 12/31, I've advised a couple of clients to list 12/31 rather than 12/30 as the term date.

[RatherBeGolfing]

I agree.

[Tom Poje]

just for grins at the 2005 ASPPA Conference the IRS individual responded to a similar type question. of course, such responses don't necessarily reflect an actual Treasury position.

 

What is really being asked here is “What does it mean for an employee to be employed on the last day of a plan year?” Consider the following examples:

1. July 31, 2005 falls on a Sunday. If an employee's last day of work was on July 29, 2005 and the plan sponsor is closed on Saturday and Sunday, would the employee be considered to be employed on the last day of the plan year ending July 31, 2005?

2. Employee terminates employment on February 23, 2005 and is paid two weeks unused vacation pay on his last day of work. Would this employee be considered to be employed on the last day of the plan year ending February 28, 2005?

3. Following a hectic tax season, a CPA firm closes from April 16th through May 5th. An employee works on April 15 but does not return to work when the company re-opens in May. Would this employee be considered to be employed on the last day of the plan year ending April 30, 2005?

4. December 31, 2004 was New Year's Eve and many businesses were closed that day since January 1st was a Saturday. If an employee's last day of work was on December 30, 2004, would the employee be considered to be employed on the last day of the plan year ending December 31, 2004?

   These questions were answered by an IRS representative in the following manner at the fall 2005 ASPPA Conference:

 

Being “employed” on the last day of the year is not the same as working on the last day of the year. Employment is a “relationship” with the employer. If you are on vacation and someone asks you where you work, if you are still ‘employed,’ you have an answer, even though you are not actually working during the vacation period.

So, if 12/31 is a Sunday and it is a business that is only open Monday to Friday, unless someone has been terminated from employment as of that day, they are still employed even though it is not a work day.

So, your example 1: as long as the person wasn't terminated, he is still employed on 7/31 even though it's a Sunday and not a work day.

Example 2. Employee is terminated prior to the last day; he is not employed on the last day regardless of how much money he is being paid upon termination. He is no longer employed by the firm as of 2/23.

Example 3. The question is always “is he employed” during that period, not “is he working.” (BTW, seasonal employee rules were never issued, so let's not deal with “seasonal employees” here—besides, I don't think a three week shut down qualifies as “seasonal”). Let's just assume that everyone is on vacation. Are they fired (terminated) on 4/16? Unlikely. They are basically on a company wide vacation; they are still employees; they are supposed to come back on 5/5. Therefore, they are still employed as of 4/30.

Example 4. Basically the same as opening comment about 12/31. Here, the company is closed 12/31 and last day of work was 12/30. None of that matters; what matters is “was he still employed on 12/31,” and the answer is yes (unless he was actually terminated on 12/30). (IRS Q and A #32, Fall 2005 ASPPA Annual Conference)