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November 23, 1999
Use-it-or-lose-it vacation: now it's a win-win 401k benefit
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your organization has a use-it-or-lose it vacation policy. Employees might not be too happy about it, but the organization believes it has to do it to contain future costs and insure people take a break once in a while. Well the IRS has just ruled that this potentially negative policy could actually become a plus for both employee and employer.

Under the new ruling the value of the unused leave can be put into the employee's 401k plan. The contribution won't count as wages for tax purposes, and neither will it be subject to FICA or Medicare taxes.

So employees should be happier - they don't lose when they fail to take vacation. And for employers, this feature takes the hard edge out of use-it-or-leave it policies. There is one restriction that applies: it's not permitted if the company provides an option to give cash for unused leave.

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