Contributions of unused vacation to qualified plans: proceed with caution

Article Abstract:

IRS Letter Ruling 9635002 established that an arrangement in which unused vacation benefits were contributed to a qualified plan was not a cash or deferred arrangement, but the IRS did not address the nondiscrimination test implications of such plans. The IRS found that the arrangement was not subject to the $9,500 limitation on cash or deferred elections, the employees did not constructively receive the vacation benefits, and the vacation benefits were not subject to FICA taxes. If executives are more likely to accept the contribution option, nondiscrimination problems may result.

author: Kershaw, Alicia M., Shultz, Paul T.
Vacations & Holidays, Employee vacations

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Editor's note

Article Abstract:

The Department of Labor has proposed regulations that would substantially shorten the time that employers can take before depositing plan assets and other withholdings into the appropriate accounts. Employers had been allowed up to 90 days to segregate assets intended to be contributed to employee benefit plans. Under the regulations released in Dec 1995, employers would be allowed the same number of days that they are allowed for federal depository tax purposes. Employers with annual tax withholdings exceeding $50,000 have only a few days to transmit funds.

author: McNeil, Bruce J.
Withholding tax, Deposits (Law)

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IRS established expanded voluntary correction program for tax-qualified plans and tax-sheltered annuity plans

Article Abstract:

The IRS has established the "administrative policy regarding self-correction" to replace the "administrative policy regarding sanctions" and provide benefit plan administrators with expanded opportunities to correct plan errors. The IRS has identified the types of errors that can be remedied through the program and those that cannot be. The program covers operational defects but not tax issues. Only when both retroactive and prospective correction is complete will relief be granted.

author: Mustone, David A.
Management, Taxpayer compliance, Tax compromises

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subjects list: United States, Laws, regulations and rules, Pension funds, Qualified benefit plans
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