COVID-19 Sick and Leave Pay

[Gilmore]

Am I correct in assuming if a Plan uses the "W2" definition of compensation that the compensation earned as COVID-19 Sick or Leave Pay would be considered as compensation for plan purposes?

Thanks.

[Larry Starr]

2 hours ago, Gilmore said:

Am I correct in assuming if a Plan uses the "W2" definition of compensation that the compensation earned as COVID-19 Sick or Leave Pay would be considered as compensation for plan purposes?

Thanks.

Yup.

[Gilmore]

Great, thank you Larry.

[Christine Roberts]

I have see Fidelity quote this section of their Trust Agreement/BPD as questioning whether FFCRA mandated payments are the proper basis for plan contributions.  I think the reference is misguided - the employer payroll tax credit does not impact the 404 deduction - but just thought you would be interested.

20.23. Permitted Reversion of Funds to Employer. If it is determined by the Internal Revenue Service that the Plan does

not initially qualify under Code Section 401, all assets then held under the Plan shall be returned by the Trustee, as directed

by the Administrator, to the Employer, but only if the application for determination is made by the time prescribed by law for

filing the Employer's return for the taxable year in which the Plan was adopted or such later date as may be prescribed by

regulations. Such distribution shall be made within one year after the date the initial qualification is denied. Upon such

distribution the Plan shall be considered to be rescinded and to be of no force or effect.

Contributions under the Plan are conditioned upon their deductibility under Code Section 404. In the event the

deduction of a contribution made by the Employer is disallowed under Code Section 404, such contribution (to the extent

disallowed) must be returned to the Employer within one year of the disallowance of the deduction.

Any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one

year of the contribution.

 

[AlbanyConsultant]

Along the lines of the OP, I've got a plan asking me if they have to match on the paid family leave under FFCRA.  It's a discretionary match made after the end of the year (that they always do), and the plan uses a W-2 definition of compensation.

It sounds like the pay would be included - if I understand it correctly (and I certainly may not be), the company is paying the employee and the federal govt is reimbursing the employer.  I asked if they knew if how it would be reported tax-wise and got this answer:
 

Quote

From what they are telling me is they are awaiting instruction on what box these codes are to be reported out off on the W2.  That has not been released yet.  On the form to set it up on the system, it asks us: Do you have a 401k? [ ]Y [ ]N; If YES, can an employee still contribute and receive the employer match on these wages? [ ]Y [ ]N

Can we mark NO to the second question?

Their goal is to not give match on this FFCRA pay, but I'm not sure that's going to be allowable.  If it's "compensation", it can be deferred upon, and it gets the match (unless the plan is amended, I suppose, but no way would that pass nondiscrimination testing).

Is this still the same thing - compensation is compensation?  Thoughts, comments... thanks.
 

[Larry Starr]

5 hours ago, AlbanyConsultant said:

Along the lines of the OP, I've got a plan asking me if they have to match on the paid family leave under FFCRA.  It's a discretionary match made after the end of the year (that they always do), and the plan uses a W-2 definition of compensation.

It sounds like the pay would be included - if I understand it correctly (and I certainly may not be), the company is paying the employee and the federal govt is reimbursing the employer.  I asked if they knew if how it would be reported tax-wise and got this answer:
 

Their goal is to not give match on this FFCRA pay, but I'm not sure that's going to be allowable.  If it's "compensation", it can be deferred upon, and it gets the match (unless the plan is amended, I suppose, but no way would that pass nondiscrimination testing).

Is this still the same thing - compensation is compensation?  Thoughts, comments... thanks.
 

At this point, compensation is compensation.  To NOT match the FFCRA pay, you would have to amend your definition of compensation to exclude that amount, which now brings a whole host of other problems when not using a safe harbor definition of comp.  Tell the client NO.