Section 125 plan question

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We have a vacation buy plan in place and we also have a policy whereby employees can carry 5 days of non-elective vacation into the next year. Our vacation buy policy stipulates that vacation that has been purchased must be used by the end of the fiscal year or be forfeited. We also realize we have the option of paying out the vacation time which has been purchased but unused.

Due to the ordering rule, my understanding is as follows:

If there is a policy that non-elective time can be carried over, then it doesn't fall into the ordering of payment. It remains outside the plan. If someone gets 15 days of non-elective time per year and buys one week of elective time and the company has a policy that 5 days of non-elective time can be carried over, then only 10 of the non-elective days fall under the ordering of payment. The other five non-elective days would be eligible for carry over. The elective days would have to be used or cashed out or forfeited by year end.

Does anyone know if this is a correct interpretation of the rule??
Dis, she IS the HR department, asking the rest of us who are HR folk here to confirm. Check the specific forum.

Kim, my state has weird rules re: vacation but to the best of my knowledge, you are correct.
Thanks -- I'm waiting on the IRS to respond in writing, but I could be very old before that letter gets here.
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