PLR 9419025 concludes that a municipal employee who relinquishes a right to a cash payment for accrued sick leave and exchange that right for additional pension service time recognizes taxable income in an amount equal to the cash the employee was entitled to receive. What if the municipal employee's choice is either to defer a portion of accrued vacation and sick leave to a 401(a) plan or to relinquish the right to defer a portion of accrued vacation and sick leave to the 401(a) plan in exchange for additional pension service time? If the employee chose to defer a portion of the accrued vacation and sick to the 401(a) plan, based on PLR 9840006 the employee would not recognize taxable income for the portion that was deferred into the 401(a) plan. If the employee relinquishes the right to defer in exchange for additional pension service time, does the employee recognize taxable income in an amount equal to the portion that could have been deferred to the 401(a) plan? Any thoughts on this would be greatly appreciated.

How do employees get to make individual deferral elections to a governmental qualified plan, other than a grandfathered 401(k) plan?