Is pay under the Families First Coronavirus Response considered compensation for plan purposes?

Yes, compensation paid to an employee under the FFCRA (Families First Coronavirus Response Act) is considered plan compensation subject to salary deferral elections in force at the time of payment and, unless guidance to the contrary is received from the Treasury, is compensation for purposes of calculation of employer contributions.

The IRS clarified this point in Q-A 54 of COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs published on April 17, 2020:

54. Can employees make salary reduction contributions from the amounts paid as qualified leave wages for their employer sponsored health plan, a 401(k) or other retirement plan, or any other benefits?

The FFCRA does not distinguish qualified leave wages from other wages an employee may receive from the employee’s standpoint as a taxpayer; thus, the same rules that generally apply to an employee’s regular wages (or compensation, for RRTA purposes) would apply from the employee’s standpoint. To the extent that an employee has a salary reduction agreement in place with the Eligible Employer, the FFCRA does not include any provisions that explicitly prohibit taking salary reduction contributions for any plan from qualified sick leave wages or qualified family leave wages.

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Cetera Retirement Plan Specialists is a third-party administrator and may not offer tax, legal or investment advice. Plan sponsors should consult their own tax, legal or investment professionals.