Law & Order

It’s Now Okay to Convert Vacation/Sick Days Into Retirement Savings

Companies are now allowed to transfer monies for unused vacation or sick-leave into a worker’s 401(k), Keogh or profit-sharing plan. The Obama Administration approved the new procedure as a mechanism to encourage savings. Some businesses may need to first amend their benefit plans to permit the practice.

The rules apply to both annual distributions and cash-outs at the end of a worker’s employment. The payments are still subject to overall annual contribution limits. Companies have flexibility on how to apply the new option, whether limiting the amount of leave subject to payment or changing the rules from year-to-year, so long as the policy applies equally to all potential participants.

The Obama Administration also streamlined the process to adopt automatic enrollment in 401(k) plans, whereby employers directly deposit a small percentage of each paycheck into workers' retirement accounts. The new procedure removes the need for case-by-case approval by the IRS, potentially encouraging more small and medium-sized companies to offer automatic enrollment. 

Additional information is available here

Questions may be directed to Stuart Gosswein.