4055 / Can an employer make post-retirement contributions to a tax sheltered annuity on behalf of a retired employee?

Yes, but time limits apply.

Under the IRC, the term includable compensation ( Q 4043) means compensation earned by the employee for the most recent period, ending not later than the close of the taxable year for which the limitation is being determined, that constitutes a full year of service and that precedes the taxable year by no more than five years.¹

A former employee is deemed to have monthly includable compensation ( Q 4043) for the period through the end of the taxable year in which the employee ceases to be an employee and through the end of each of the next five taxable years. The amount of the monthly includable compensation is equal to one-twelfth of the former employee’s includable compensation during the former employee’s most recent year of service. Accordingly, non-elective employer contributions for a former employee must not exceed the IRC Section 415(c) limit up to the lesser of the dollar amount in IRC Section 415(c) or the former employee’s annual includable compensation based on the former employee’s average monthly compensation during his or her most recent year of service.²