Is an employee who is receiving severance pay eligible for a contribut

[stephen]

Employee is recieving 3 months of severance pay Starting May 1 (to July 31) for a plan with a June 30 year end.

The plan requires you to be an Employee (or on approved absence) with 1,000 Hours of Service and be an Employee on the Allocation Date.

Employee defined as any common-law employee of an employer. A leased employee, as described in section 414(n) of the Code, is not an Employee for purposes of this plan.

Is this person eligble for a contribution?

[rcline46]

Does an Employer / Employee relationship exist? In fact, this person is no longer an employee, they are drawing benefits on a non-qualified plan of deferred compensation.

Therefore they cannot defer 401(k), nor will they be an employee at June 30th (unless rehired).

[AndyH]

I think no based upon the "allocation date" requirement. If this were met, I think the comp question depends upon the definition in the document.

I agree that deferring severance into a K plan is a no no, but my understanding is that this is plan-specific question otherwise.

[stephen]

Upon further inquiry with the client I was told the employee terminated at the end of April. He is only recieiving severance pay. He no longer works for the employer.

I feel this makes him inelgible for a contribution for this plan year (unless he is rehired).