Severance pay included in 3% NEC safe harbor compensation?

[Guest tlewis]

Hello all,

I'm new to this forum and see similar questions but not exactly my question so here goes:

We have a safe harbor 401(k) plan with a 3% NEC. Our plan uses the "415 safe harbor compensation" excluding reimbursements, expense allowances, fringe benefits, moving expenses, and deferred comp welfare benefits.

Should severance pay be included in the compensation (just for the 3% - I've seen numerous discussions about the deferral portion)? If the severance pay carries over a plan year, would the participant only receive the 3% for the year they were an eligible employee?

Any help would be much appreciated!!

[Guest dogsbody]

Tripodi says that if a plan uses the 415 definition of compensation, severance payments are generally included. The document may sometimes specifically state how severance pay is to be treated. Where the plan calls for the exclusion of welfare benefits, Tripodi suggests that it “might be reasonable to interpret the plan to exclude severance payments since most severance pay programs are treated as welfare benefit plans for ERISA purposes.” If you have access to the "ERISA Outline Book" see page 1.96 (2003 edition).