Artie M

I do not keep statistics on this but some of my clients use this method, against my advice. I am not sure what you are asking in your final question as I don't think the client's methods can vary from the recordkeeper (TPA). I know that many TPAs want to use the method outlined in the IRM as administratively it is much more convenient (and some try to force its use). We let the clients know that even if a plan sponsor decides to use the IRM method, the IRS reserves the right to ask for the hardship source docs. The information letter on which the IRM is based notes that the auditor should only ask for the source documents in 2 circumstances, but those circumstances are not included in the IRM and even if they were they are only guidance to an auditor. If audited and the participant doesn't have the source documents or cannot find them, seems like the employer may have to go into Audit CAP (luckily none of my clients have had this issue under audit). Convenience = increased audit risk.

Hate to beat a dead horse but I don't see it as easily as you guys do. Treas. Reg. s 1.415(c)-2(e)(3)(iv): "if they are paid after severance from employment with the employer maintaining the plan," The IRM conveniently omits that phrase. That highlighted language means (to me at least) that severance paid any time after severance from employment is not included in 415 comp even if it’s paid within the time period in (e)(3)(i) [2½ months/end of LY]. Otherwise, why is the underlined language in the Regulations?

Thanks for the link but I guess I am just dense. I don't see the authority for your statement. s 31.3401(a)-1(b)(4) states severance is in wages. (this reg also updated in 2007). Looking for the statement that says don't ever include severance in the 415 W-2 safe harbor definition.

The use of a January date in your example does give one pause.... I agree that if your plan provides that comp is based on the default rule in 415, severance should not be included whether it was paid pre- or post-termination of employment as that comp definition includes only amounts received for services actually rendered. (I didn't use quote marks as I have not busted out the books but I think that is right). This rule would not apply to NQDC, so timing seems relevant. However, I am not certain about your blanket statement that severance is never included when using the W-2 6041 definitions. I believe severance and NQDC are includible in W-2 compensation and are reportable, including for purposes of the 415 safe-harbor definitions. Can you provide authority for your blanket statement?