IRS Considering 403(b) Contributions for Unused PTO

November 17, 2009 ( – The Internal Revenue Service is considering giving 403(b) plan participants the option to contribute to their plan accounts the dollar equivalent of unused paid time off.

CCH reports that during a recent IRS teleconference on recent retirement plan news, Rhonda Migdail, manager, IRS Employee Plans, noted that in September, the Obama administration and the IRS announced several initiatives to encourage retirement savings. Revenue Ruling 2009-31 allows a qualified plan to permit certain annual contributions of the dollar equivalent of an employee’s unused paid time off, and Revenue Ruling 2009-32 provides that a qualified plan may allow employees on the termination of employment to contribute the dollar equivalent of unused paid time off to the plan (see IRB 2009-39 ). However, these provisions would not apply as currently stated to 403(b) plans, Migdail said, according to the news report.


While she said the IRS is considering extending the rules to 403(b) plans, Migdail did not indicate when the IRS may issue additional guidance. However, she did say that if the contributions are allowed and if they are treated as non-elective contributions, they will not be subject to payroll taxes.