We are a local government with a pension plan through the state retirement system, a 401(a) plan. One of our employees is buying service credit through the pension. I know that what he pays from his paycheck is tax deferred. I don't know how it gets reported on his W-2. Does it go in box 12 and, if so, what's the code? Or does it not go on at all?
Step 1 is to confirm that you meet the requirements of being a qualified employer savings plan.
Since you are a local government, I am guessing, but you should confirm, that this is a 403(b) plan.
If the service credit being bought with pre-tax money, and is coming out of gross pay, and if the plan allows this, then W-2 box 1 is reduced by that pretax amount, but box 5 (Medicare wages) is not.
I assume you do not contribute to social security, and if true, boxes 3 and 4 are blank.
Box 12 would contain the pretax amount, and be coded as E, which is the code for a 403(b) plan.
to have a quaalified plan expert review what you are doing.
I'm only replying because I don't want the OP to miss your statement that your answer is predicated on the payment being "pre-tax."
All of the state pension plans I am familiar with that allow a member to buy service credit, do not have pre-tax payroll deduction for buying of credits. Buying of credits required a post-tax payment by the member. If the payment was made via payroll deduction, it showed up in Box 14 Other of the W-2. If the payment was made directly, there was nothing on the W-2.
The after-tax amount contributed becomes part of the employees cost basis and would get reflected as an employee contribution on a 1099-R once the employee starts to take distributions from the plan.
As a clarification, the plan is through CalPERS and they permit members to choose whether the deduction is pre- or post-tax. The member chose pre-tax. My read on Box 14 is that it's either involuntary contributions or voluntary after-tax, so I don't think it applies.
It's not 403(b) or 457. I don't see any codes for Box 12 that apply, either.
It's been five years since I left CA. When I was there I dealt with CSU and UC employees who belonged to CAlPers. I don't recall they having the option for pre-tax payroll deduction to buy additional service credit. I am guessing, that this is probably a state employee whose employer offers this option.
As the payment is coming out of wages and it is elective, I would assume that it would be treated exactly the same as the regular pre-tax contributions to the plan. Box 1 of the W-2 would not reflect the amount withheld as taxable wages and Box 12 would have the amount contributed with the code that reflected which CalPers plan the employee belonged to.
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