deferred compensation payments as income for 401(k) plans

[K2retire]

I know little or nothing about 409A plans, so I apologize if my question is too basic. We have been asked by a plan sponsor if a terminated employee's income from their 409A plan can be included in compensation for their 401(k) plan. The payments are only available after termination of employment and will continue for 5 years.

The 401(k) plan's definition of compensation is W-2 wages, which would include distributions from a non qualified plan. But the payments only being available after termination of employment makes me think they can't be included in 415 compensation. And with no 415 comp, there could be no deferrals.

What is the rule on this?

[Kevin C]

The plan has some flexibility in how it handles post-severance compensation. The answer should be in the plan's section 415 amendment. In our VS document, taxable payments from a nonqualified unfunded deferred compensation plan only count as Compensation if they would have been paid at the same time if the employee had continued employment.

[Guest EE Bene]

The plan may have some flexibility, but that is largely determined by the plan document. If the plan document isn't clear, it's time for an amendment which should make it clear.