Compensation - Post Severance

[PFranckowiak]

I have a 401(k) Plan that has laid off a group of EE's. It is Safe Harbor Plan with 3% SH contribution.

Some of the EE's were sales people with Cars. They are going to run the Cars through the payroll system because they are now taxable income. The employee is not receiving any cash payment. Just the Car.

With New/Proposed Severence Rules would a Safe Harbor Contribution be due on the Amount of the Car that is being run through Payroll as Part of the Compensation Package?

Document is Corbel Prototype. NonStandardized.

Thanks

P

[ERISAnut]

Not sure what all the details are, but this should be determined by the definition of compensation being used (either Withholding Pay or W-2). If the plan defines includible compensation as Withholding Pay, then the car allowance would not be used. However, if the plan defines compensation as W-2, then the car allowance would be used.

Since there is no cash, there will be no deferral (CODA), but the compensation that is used to calculating the employer contribution (or even the deferral limit) would be subject to the plans definition of includible comp.

[PFranckowiak]

Thanks - more info

Compensation definition is w-2

The amount that they are running through payroll is Post Severance as he left May 5.

Amount is the Car that they are giving him - It was the car he used at work and previously had the use of the car taxable on the W-2, but they are just giving him the car as Severance.

P

[ERISAnut]

This gets very detailed and straddles a tight line.

I'm thinking there is a 2.5 month rule that would serve to treat these amounts as includible, but only to the extent they would have been includible in compensation had the employee not severed. Based on this, I would say that these amounts are excludible from compensation; even if this transaction was done within 2.5 months after he severed employment.