Many businesses find themselves short-staffed from Thanksgiving
through December 31 as employees take time off to spend with family and
friends. But if you limit how many vacation days employees can roll over to the
new year, you might find your workplace a ghost town as workers scramble to
use, rather than lose, their time off. A paid time off (PTO) contribution
arrangement may be the solution.
How it works
A PTO contribution program allows employees with unused vacation
hours to elect to convert them to retirement plan contributions. If the plan
has a 401(k) feature, it can treat these amounts as a pretax benefit, similar
to normal employee deferrals. Alternatively, the plan can treat the amounts as
employer profit sharing, converting excess PTO amounts to employer
contributions.
A PTO contribution arrangement can be a better option than
increasing the number of days employees can roll over. Why? Larger rollover
limits can result in employees building up large balances that create a
significant liability on your books.
Getting started
To offer a PTO contribution arrangement, simply amend your plan.
However, you must still follow the plan document’s eligibility, vesting,
rollover, distribution and loan terms. Additional rules apply.
To learn more about PTO contribution arrangements, including
their tax implications, please contact us.
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