An issue that can arise when considering the potential qualified status of a tax-qualified retirement plan (a “plan”) (including related items such as IRS audits and internal Form 5500, Annual Return/Report of Employee Benefit Plan, reviews) is whether the definition of compensation under a plan is being properly implemented based on a participant’s elective deferral election and corresponding employer contributions based on an employee’s elective deferral election and the plan document. Specifically, a plan will sometimes provide a separate employee elective deferral election on bonuses when the plan already includes bonus payments in its definition of compensation.

In the Bloomberg Tax article, “Employee Deferrals and Employer Contributions on Bonus Payments May Pose Challenges,” Groom associate John Barlow provides background on this issue and discusses the consequences of providing separate deferral elections on bonuses, the potential risks of permitting such separate elections, and related considerations that are important to maintain the tax-qualified status of a plan.

To read the article, click here.


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April 20, 2023

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