Deferral of vacation or sick leave payouts
Office of the State Comptroller released this memorandum.
STATE OF CONNECTICUT
HEALTHCARE POLICY & BENEFIT SERVICES DIVISION
OFFICE OF THE STATE COMPTROLLER
DIVISION MEMORANDUM 2014-02
July 2, 2014
ATTENTION: Human Resource, Benefit and Payroll Officers
Participants in the 457 and 403 (b) Plans
SUBJECT: Deferral of Vacation or Sick Leave Payouts from Final Paychecks to Defined
The State of Connecticut offers two voluntary defined contribution plans: the 457 Deferred Compensation Plan–open to most active employees–and the 403(b) Plan–offered to those employed by eligible educational institutions and hospital facilities. Employees who are retiring or leaving State service are eligible to contribute post-employment payouts for unused vacation or sick leave into these plans.
Payments due for unused sick or vacation leave are considered ‘wages’ and typically are paid by the next regular pay day after a State employee separates from service. Vacation and sick leave payouts can amount to thousands of dollars, and federal and state income taxes on these amounts can be substantial. For this reason, many employees find it advantageous to defer some or all of their vacation or sick leave payouts into the 457 or 403(b) plans. By doing so, employees can reduce taxes on the final payout and build up additional retirement savings.
The process for contributing these final payouts to the 403(b) or 457 Plan requires some advance planning. IRS regulations require that written deferral agreements be submitted the month before the final payment is made. This means, for example, that if the vacation/sick leave payout is due in August, the signed paperwork must be in place by July. This memorandum outlines how employees can take advantage of this benefit.
Employees who are eligible to participate in either the 457 or the 403(b) Plan can defer final payments of vacation and/or sick leave up to the maximum allowable limit. Even if an employee has not previously participated in the plan, deferral of these amounts will be permitted if the necessary enrollment forms are submitted on time.
A. Participation Form Required.
The first step in the process is completinga Participation Agreement Form for the 457 Plan and/or a Salary Reduction Agreement Form for the 403(b) Plan). These forms (and instructions) are available on the Defined Contribution Plans’ official website, www.CTDCP.com. The form should designate the amount to be contributed and the date of the final paycheck. The form must be received by ING, the plans’ third party administrator, before the beginning of the month in which the final paycheck will be paid and in sufficient time to allow for payroll processing.
B. Determining Maximum Deferral Amount.
For both the 457 and the 403(b) Plans, the maximum contribution limit for 2014 is $17,500 (plus an additional $5,500 for those aged 50 and over). An employee who is eligible for both plans can contribute the maximum amount to each. In order to properly calculate the deferral amount, an employee may require the assistance of agency Payroll officers to obtain an estimate of the gross vacation/sick leave payout, the date when it will be paid, and the amount of his or her year-to-date contributions to the plan. To calculate the final deferral amount, the employee will need to factor in any contributions that will have been made by the time the final paycheck is issued.
If the employee is over 50 (and has not previously used the age 50 “catch-up” provision in the 457 plan), he or she will also need to enter a “Normal Retirement Age” if total deferrals for the plan year will exceed $17,500.
C. Due Date for Submitting Form to ING.
The completed form(s) must be signed before the date of separation or retirement and returned to ING in sufficient time to allow for payroll processing. The form must be in ING’s possession before the Cut-Off Date listed on the attached Payroll Cut-Off schedule.
All completed forms should be mailed to:ING ³ P.O. Box 990069 Hartford, CT 06199-0069
Once a final payout check has been processed, Payroll Officers should not be reversing or reprocessing checks to allow employees to make untimely deferrals of vacation and sick leave payouts.
D. Common Problems to Avoid.
Advance planning is needed to prevent common mistakes that can derail an employee’s planned deferral of vacation and sick leave payouts. It is critically important to make sure the selected deferral amount (together with all year-to-date contributions) does not exceed the IRS contribution limit. If the requested deferral exceeds the amount of the employee’s final check, no deduction will occur. When the form is sent to ING early enough, the plan administrator will be able to reach out to the employee to rectify the situation before the payroll cut-off date. However, if the form is sent in late or too close to the cut-off date to secure corrections, the deduction will not take place.
Payroll and Human Resources Personnel are strongly encouraged to work with employees to provide information about their year-to-date plan contributions, the amount of any anticipated vacation/sick leave accruals, and the date when such payouts will be made.
Employees who want help in calculating the amount of their sick or vacation leave deferrals to the 403(b) or 457 Plan can call ING at 1-800-784-3686 option #4 or can log onto our dedicated web site –www.CTDCP.com for more information. You may also contact Amy Cason at firstname.lastname@example.org or 860-702-3553 for assistance.
Very truly yours,
THOMAS C. WOODRUFF, Ph.D. Director
State of Connecticut
457 Plan and 403(b) Plan
Payroll Cut-off Date Schedule
Plan Year 2014
Bi-Weekly (26) paydate
Semi-Monthly (24) paydate
Monthly (12) paydate
|26||11/19/2014||12/26/2014||12/31/2014||No changes allowed|
* Forms are due by 12:00 p.m. on the cut-off date.
The cut-off date is the last date that a participant can submit a change for the corresponding check date
 Detailed eligibility guidelines for each Plan, can be viewed on the Defined Contribution Plan web site – www.CTDCP.com .  For a retiring employee, “Normal Retirement Age” should be your current age. For a terminating employee, enter age 65 or older.  Effective September 1, 2014, ING will change its name to VOYA