>Speaking at the annual meeting of the National Association of Government Defined Contribution Administrators, Inc. (NAGDCA), Cheryl Press, Senior Counsel at the Internal Revenue Service, Office of General Counsel, Tax Exempt and Government Entities, acknowledged that the issue of vacation and sick pay deferrals were “pably the biggest issue” for NAGDCA members, but that the final regulations (see NAGDCA Offers Opinion on Sick, Vacation Pay Contributions ) laid out a strict rule that “is still in existence.”
>Press did note, however, that not only was the Service aware of the issue, but that a “415 project” currently underway was looking at the timing of such payments, as well as a revised definition of compensation. Press said that the Service was “looking at this issue (vacation/sick pay deferrals), not just with 457s,” but also as it pertains to 401(k) and 403(b) plans, where “…there is currently no set rule,” she noted.
>Proposed regulations would have allowed participants of an eligible plan to defer compensation, including accumulated sick and vacation and back pay, but only if the participant had made an election to do so before the beginning of the month in which the amounts would otherwise be paid or made available – IF the participant was an employee in that month. Responding to comments during the review process, the final regulations liberalized that requirement under a special rule that allowed such an election for those type deferrals after the beginning of a month in which they were retiring or having a severance from service, IF it would have otherwise been payable before the employee has a severance from employment and the election is made before the date on which the vacation pay would otherwise have been payable.
>Late last year Press admitted that the law as it currently stands affords no lag time administratively, and that has been an issue for sponsors of state and local government deferred compensation plans, or Section 457 plans (so called because they are established in Section 457 of the Internal Revenue Code). (see Vacation, Sick Pay Deferrals Sticking Point for 457 Plans ).
>However, Press went on to say that she was hoping a solution would come out with the new 415 rules, a solution that would apply equally to deferred comp and defined contribution plans. However, “I can’t say when,” she cautioned, but noted that the Service was working on it, and that it is a priority.
>Later in the session, while discussing the model amendments for 457 plans published by the IRS in Revenue Procedure 2004-56 (See IRS Provides Model 457 Plan Amendments ), Press drew attendees’ attention to the fact that there was “nothing on sick or vacation pay” in the model amendments. “We’re trying to fix that”, she reminded them.
>Regarding the model amendments, Press noted that the comment period was still open, and would be through November 30. However, she said the IRS had not yet received any comments on them (they were issued about a month ago), and encouraged the participants to do so.
Comments should be sent to the following address:
Internal Revenue Service, Attn: CC:DOM:CORP:R (Section 457 Plans), Room 5201,P. O. Box , Ben Franklin Station, ,. Written comments may be hand delivered Monday through Friday between8 a.m. and 4 p.m.
1111 Constitution Avenue, NW.,,.
Alternatively, written comments may be submitted electronically via the Internet by selecting the “Tax Regs” option on the IRS Home Page, or by submitting them directly to the IRS Internet site at http:/www.irs.gov/tax_regs/reglist.html .