Back pay award

[Guest michaelb]

We have an employee that was ordered reinstated and awarded back pay. He wants to put a portion of it in the 457(b) plan on the theory that had he not been improperly terminated he would have deferred that amount. He has already received the back pay award and is proposing to return part of it to be deposited in the plan.

My inclination is to say that if he could have done it at all, it is too late now that he has received the award and there was not agreement providing for the deferral in place. If there is a way he can do defer it under these circumstances, the question becomes the applicable deferral limit as the back pay was attributable to multiple years. Is there any authority or guidance on this situation?

[Guest kjungkin]

Based on the final regs under 457, I think your inclination is right and now that the participant has received the funds he cannot return them to the employer and then make a deferral. Clearly, the deferral has to occur prior to actual receipt of the back pay award by the participant. I think the final regs also make clear that if he had made a timely deferral election with respect to the back pay, he would have made the deferral election for the current year, not the prior years in which he would have received the pay but for his wrongful termination.