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What is this retirement incentive, is it a wage supplement?

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  • What is this retirement incentive, is it a wage supplement?

    PA employer and Union agree to a lump sum $ 5000 incentive designed to get rid of workers over 65 , just on age and in lieu of a health plan continued for other younger retirees . retire by date XX to qualify

    Is that exit incentive a wage supplement as most of you understand PAs wage payment and collection law?
    Reads like it fits the definition to me ...

    BTW employer has no intention of paying it any time soon or by check/cash but to stuff it into a 403(b) and circumvent paying FICA And state taxes.......Waiting a few extra months is not critical to me .

    But some of the hairline splits of if it is a wage supplement or merely an insurance plan of sorts may have repercussions down stream.


  • #2
    Sorry, I cannot seem to get cut and paste to work ..but the relevant definitions are found in Pa Wage Payment and Collection Law , section 2.1


    • #3
      Don't know that answer, but one thing that popped to my mind -- > what are the distribution provisions of the 403(b)? Smells fishy IF it goes in at retirement but then can be immediately withdrawn by the ex-employee/participant due to retirement status to avoid taxes by the employee or employer...... I would say that you also have issues on the 403(b) side about whether you can force the deferral (or is it then considered an employer contribution) and whether the plan allows for it and whether the 403(b) will pass availability and nondiscrimination testing.

      Personally it doesn't pas the smell test overall....but it's been a while since I was consulting on retirement plans. One thing I do know is that they must follow the plan document as written or make a plan amendment to allow for it.


      • #4
        Originally posted by Raster View Post
        BTW employer has no intention of paying it any time soon or by check/cash but to stuff it into a 403(b) and circumvent paying FICA And state taxes.......Waiting a few extra months is not critical to me .
        FYI, a 403(b) does not defer FICA, just FIT and SIT. Whether or not the $5K can be legally deferred at all is a function of reading the actual plan rules. Assuming the $5K can be legally deferred in the first place, then the entire 403(b) balance is subject to the normal disbursement rules.
        Last edited by DAW; 10-11-2014, 06:19 AM.
        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)


        • #5
          Hr for me..good question....this fishy bucket has been around for some time in PA, yes one can roll out of the 403(b) literally as fast as the funds clear. The employer funds a 403(b) which is set up by employee via the one and only approved vendor . The genesis of these steps is PA tax code paralles IRC except PA wants its money up front and goes thru legal gymnastics to,address that a voluntary salary reduction plan is in their view the right to money now and constructive receipt hence taxable now..there is a Pa PIT on point, this was countered in 2005 by unions who put it is as a contract provision and PA Dept of Rev issued a new PIT 05 .20 ( I think that the number ) which allows for,same as NOT constructive receipt . These buckets in general were used to pay out accrued leaves of various sorts...and also end run being part of pension plan .

          The basic two step is that distributions from a pension plan are not taxed in PA at state or local level.

          But my quest for wisdom as to what is it comes from a different quarter .

          This specific one page incentive provides for about 20X greater health based bridge for those 57-65 employee spouse ....all of which is keyed to a rush to clear out people by date XX....which may well be legal under 29 CFR 1625.32 IF and only IF the plan is a benefit plan as defined in 29 USC 1002(3)

          ( Yes, I have preserved my legal protections and am aware that the PA discrimination laws trump ADEA and may be stronger in some views as to age issues)


          • #6
            Actually 403(b) is the Internal Revenue Code section. These are federal rules (IRS), and same in all 50 states. I am going to check and cite the actual IRS rules on distributions:


            When can employees take money out of a 403(b) plan?
            In addition to loans and hardship distributions, a 403(b) plan may allow employees to take money out of the plan when they:
            • reach age 59;
            • have a severance from employment;
            • become disabled;
            • die; or
            • encounter a financial hardship.

            Since 2009, the 403(b) rules have been very similar to the 401(k) rules. Yes PA can have their own rules but those rules would effect PA-SIT only. The IRS rules for early withdrawal penalties would still be in effect.
            Last edited by DAW; 10-11-2014, 06:28 AM.
            "Reality is that which, when you stop believing in it, doesn't go away".
            Philip K. **** (1928-1982)


            • #7
              I may have my thinking backwards ....IF the one page cram down retire incentives or else the employer RIFs some 72 staff fits into the Federal definition of an employe benefit plan as the term is defined in Federal law/regs as to a health incentive of just younger workers below 65 that may squeak into the Federal exclusion which allows for unequal Heath benefits keyed to age 65. And the nature of what is given to older workers 65 + is moot as an ADEA violation question?

              If a retire or RIF is a benefit plan that is.


              • #8
                You've never taken my earlier suggestion and simply shown all the documentation to a lawyer, have you?
                The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.


                • #9
                  Yes and got a short list of people who might be up to the quest .

                  But for now I am following the steps set forth by Pennsylvania Human Relations Commission as to the Pennsylvania Human Relations Act as that act may actually be stronger on some ( age ) issues per the pros and somewhat different than practice under EEOC

                  In the meantime I'm trying to get best personal handle on issues I can.

                  No, I have not forgotten your suggestion--and I'm not naive enough to trust PHRC to hit home runs


                  • #10
                    If wages are being deferred to a 403b, consult a tax or financial advisor. There are limits and rules related to discretionary and non-discretionary contributions. It is unlikely anyone would exceed any maximums based on the 5K being contemplated, but it is worth investigating.

                    In general, it is legal to offer an early retirement incentive and pay it out through a 403b. I am not a finance person so I do not know the mechanics of it all, only that it can be done and done legally.

                    The MUCH bigger issue is that you are debating whether or not you should do it with how to do it. For that you really need to seek the advice of a lawyer, as you have been told a million and one times. You are doing your usual and inventing situations that are not actually there and greatly confusing the matter. It is complicated enough on its own. You need to decide if this is a path you want to pursue. If so, get thee to competent counsel and let them guide you in plan design and mechanics. Playing the "What If" game with us is not going to help you any.
                    I post with the full knowledge and support of my employer, though the opinions rendered are my own and not necessarily representative of their position. In other words, I'm a free agent.