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The Ready.Set.Retire! Blog


The Top 5 Things to know about your Frozen PTO Deferral Opportunity with Northern Light Health

Benjamin Smith, CFA

Out-of-Office-2Did you get a letter from the Northern Light Health Retirement Team regarding your Frozen Personal Time Off (PTO)? Well, quite a few of our clients did, too. We’ve been working with them over the past few weeks to put together a strategy that works for them. Here are 5 things we found:

We found there are 5 crucial items you should consider as you make your choice on how to treat these earned PTO hours. Check them out   below!

1. You can donate your Frozen PTO deferral to the Northern Light Health Foundation. To find out more about the Northern Light Health Foundation, click here. If you are donating to the Foundation for tax purposes, typically the tax deduction for charitable contributions has helped shave money off your tax bill if you itemize instead of taking the standard deduction. But under the Tax Cuts and Jobs Act, that threshold is tougher to clear. Although the deduction for donations is unchanged, you’ll still need to itemize to claim it, and that’s a much higher bar with the nearly doubled standard deduction.    (Under the legislation, an individual would need total itemized deductions to exceed $12,000, the bill’s new standard deduction for individual taxpayers, up from the current $6,350. Married couples would need deductions exceeding $24,000, up from a current $12,700.)  Before you make your decision on donating to this charity, assuming you’re charitably inclined to do so, consider with a tax professional whether you would be able to claim this gift on your taxes.

2. Another option is to contribute the Frozen PTO deferral into your account in the EMHS 403(b) Retirement Plan, the AHS 401(k) Retirement Plan, and/or the EMHS 457(b) Plan (if you are eligible). You can elect up to a $19,000 contribution to your retirement account from your frozen PEP time for 2019. If you’re over 50 years of age, you can elect a $6,000 catch-up contribution for a total of $25,000. This will be deposited in the first payroll of 2019. This is a nice feature as you’re able to maximize your retirement contributions for the year!

 3.   If you have in excess of $19,000 or $25,000 eligible frozen PTO to contribute to the retirement plan (and you’re not eligible for the 457 plan), you’ve now maximized your retirement contributions for the year. The frozen PTO is considered extra income to you (and FICA tax is withheld), and you’re now not able to reduce your normally scheduled taxable income for the rest of the year with 403(b) / 401(k) contributions. This may mean that you should consider making contributions to pre-tax IRAs and/or health savings accounts (if eligible) outside of the plan in order to reduce your taxable income to previous year levels. https:/www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000. Note you may also contribute to a spouses’ IRA as well if the situation applies.

4. When contributing a large amount of funds to a retirement plan early in a calendar year, you may be sacrificing match due to how the match is calculated. There may need to be a "true up" calculation by Northern Light Health to remedy any lost match  that may happen due to the timing of your contributions.  Please contact Northern Light Health HR to how this process is completed. Also, read this article by FINRA here for some more information. Here’s an example from this article of how this can occur.

Suppose your employer's 401(k) program provides a certain percentage match to each employee contribution   per pay period. If you max out your 401(k) contributions early in the year and subsequently stop making contributions, your employer will also stop making matches, assuming the employer's plan does not provide for "true up" contributions. (More on true ups later.)
Let’s assume that an employer will match 50 percent of an employee’s contribution per pay period, up to 6 percent of employee compensation. A worker earning $75,000 would be paid $3,125 twice a month. To contribute enough money to reach the IRS's $18,000 contribution limit, she would need to contribute $750 per pay period, or 24 percent of her salary. In that scenario, the employer would contribute $93.75 in matching funds per pay period, since 6 percent of the employee’s pay would be $187.50, and $93.75 is half of that.
If, however, the worker decided to contribute $818.18 per pay period instead, she would max out her 401(k) contributions before the end of the year—by the 22nd pay period of the year, to be exact. For the two remaining pay periods of the year, her contribution would be $0— and her employer's matching contribution would be $0 as well because there would be nothing to match. That would mean she missed out on an extra $187.50 in contributions.
"Whether she had decided to contribute $750 or the $818.18 per pay period, she would have ended up contributing the same $18,000 total during the year to the retirement plan," said Anne St. Martin, a manager at the Society for Human Resource Management's Knowledge Center. "But if she had contributed $818.18 per pay period, she would have missed out on getting the employer match for each of the last two pay periods of the year."retirement-image1
5. If you have frozen PTO in excess of $19,000 or $25,000 eligible frozen PTO to contribute to the retirement plan (and you’re not eligible for the 457 plan), you’ll have to make a similar choice in November / December 2019.

Starting November 15, 2018, you will be able to make your annual election to defer from your eligible frozen PTO bank into your account in the EMHS 403(b) Retirement Plan, the AHS 401(k) Retirement Plan, and/or the EMHS 457(b) Plan (if you are eligible). This Annual Election can only be made between November 15 and December 15, 2018. After December 15, the election window will be closed.

If you found this article helpful, you may want to refer to our   Employee Guide to the Northern Light Health Retirement plans   for more helpful tips and tricks!


Below is the FAQ from Northern Light Health:

How much do I have available to defer?
Your current Frozen PTO bank amount is $$$$$$$

What is the maximum amount I can defer in 2019?
The maximum 403(b)/401(k) amount is $19,000, or $25,000 if aged 50+ by 12/31/2019. The maximum 457(b) amount is $19,000 (no catch up).

How will this deferral affect my taxes?
piggy-bankBoth Traditional and Roth contributions are subject to FICA tax withholding (7.65%). Roth contributions are also subject to income tax withholding. We will fund the full amount of your deferral election. Any tax withholding related to your contribution will be taken from your regular pay on the pay period in which the contributions are processed. To estimate the effect of this deferral on your paycheck, deduct the FICA withholding (7.65% of your deferral amount) from your current net, take-home pay. Your maximum PTO bank deferral amount is $$$$$$$ If you defer the maximum amount, you will have additional FICA withholding from your pay of $$$$$$

How do I make the deferral election?
Simply log on to NetBenefits at NetBenefits.com/NorthernLightHealth and choose Contributions under the Quick Links drop down. Choose PTO Pre Tax, or PTO Roth (Roth available for the AHS 401k only). Please note that this one-time election will override your regular deferral election for this pay period only.

When will my deferral election be processed?
Northern Light Health’s payroll department will deduct your election from your frozen PTO bank on the first pay period in January, 2019. You can expect to see the contribution to your Fidelity account within one to two business days.

Can I still make a contribution to the Northern Light Health Foundation?
Yes. You can still contribute to the Foundation using your frozen PTO bank. You will receive a separate communication and instructions from the Foundation.

What happens if I choose not to participate?
This opportunity is completely voluntary. If you do not choose to participate, your frozen PTO balance will remain unchanged.

What if I still have questions?
Give Fidelity a call. Representatives are there to help and can walk you through this process. They are available Monday through Friday, 8:30 a.m. to midnight, ET. Call 800-343-0860.

This report is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any security discussed herein or in any jurisdiction where such would be prohibited. The information and any statistical data contained herein have been obtained from sources which we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. Any securities mentioned in this report may not be suitable for all types of investors. ALL investments involve different degrees of risk. Past performance is no guarantee of future results. Guidance Point Advisors, LLC does not provide tax or legal advice. Please consult your tax or legal advisors regarding your specific circumstances.


Topics: Saving For Retirement, healthcare