2001 (CAA), Public Law 106-554, signed into law on Dec. 21, includes a provision that adds Code Section 132(f) benefits to the existing list of salary reduction benefits that may be excluded from compensation. Under a new change in the tax code, employers may now exclude salary reductions for qualified transportation benefits under Code Section 132(f) when determining compensation for purposes of qualified plans. Qualified transportation benefits include mass transit benefits (see ¶610 of the Guide), van pools (see ¶620) and parking (see ¶630).
Code Sections 403(b), 414(s) and 415(c) limit the amount of compensation that may be taken into account for certain tax-qualified pension plan purposes, including applying certain discrimination rules and limiting the amount of contributions to such plans. For purposes of applying these rules and limitations, the definition of compensation generally includes taxable compensation plus certain salary reduction contributions such as those offered under Section 401(k) plans, tax-sheltered annuities and cafeteria plans. However, an employer can elect to exclude these salary reduction amounts as compensation when applying these qualified plan rules and limitations.
Section 314 of the CAA amends Sections 403(b)(3), 414(s) and 415(c)(3)(D) to include salary reductions for qualified transportation benefits under Section 132(f) as amounts an employer may exclude when determining compensation for qualified plan purposes. The change is retroactive to Jan. 1, 1998, as if it had been included in the provisions of the Taxpayer Relief Act of 1997 to which it relates.
From Employer''s Guide to Fringe Benefit Rules, ©Thompson Publishing Group, Inc.