If there is no risk of forfeiture provision, payments to the plan are wages for social security purposes when the services are performed and the amount deferred.

When an employee's right to a payment is conditioned upon working until retirement, all past contributions to the plan (or the value of the plan) including any accumulated interest are wages in the year of retirement. These contributions are added to any other covered wages paid in that year. Any deferred amount in excess of the maximum social security wage base is not wages.

If the substantial risk of forfeiture lapses before the employee retires, all past contributions to the plan (or the value of the plan) including any accumulated interest is wages in the year that point is reached, up to the maximum social security wage base for that year. If the employee continues working, future employer contributions are wages as they are paid to the plan.

Credit the total deferred compensation amount as wages in the year substantial risk of forfeiture lapsed. The deferred amount is counted only once. There is no further crediting of such wages.

Add the deferred compensation amount to any other covered wages paid in that year subject to the maximum wage base limitation for that year. If wages during any year exceed the maximum wage base limitation, none of the deferred compensation is included as social security wages.

Develop only if there is information in the file which indicates the employer's treatment of the payment may be incorrect, or the claimant raises a question as to the status of the payment and the PIA is affected by $1.00 or more, or deductions are involved.

If development is necessary:

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  Ask the employer if IRS has issued a ruling regarding the plan;

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  If yes, ask under what Internal Revenue Code section the plan is qualified and document the file to that effect;

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  If no, and social security taxes were not withheld, obtain a copy of the plan and make a determination as to whether payments were actually or constructively paid or if an economic benefit was received by the employee (RS 01401.030).

If the status of the plan cannot be resolved with this information, submit the case for review through the appropriate reviewing office to:

Include the following in the folder:

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  copy of the plan and the eligibility requirements;

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  date the plan became effective for employee;

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  when services were performed which resulted in the payment;

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  date substantial risk of forfeiture lapsed (RS 01401.090B.); and

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  how the employer reported the amounts for social security purposes and basis for such reporting.