Deferred comp, or severance pay?

[Ken Davis]

Governmental employer wishes to offer an employee an incentive of one year's salary to retire. The arrangement is voluntary. The offer would be made to only that one employee. The offer would be to pay one-half on 8/1/03 (which is when the employee would retire) and one-half on 1/2/04. The employee will not have the option to receive the money at any other times. Assuming the employer considers the incentive payment to be compensation, could this arrangement be considered a "severance pay" plan that would fall outside section 457(f) or is it clearly a "deferred compensation" plan subject to section 457?

Thanks,

Ken

[Everett Moreland]

31.3121(v)(2)-1 has some helpful guidance on what is severance pay and what is deferred comp.