Final 415 Regs' Post-Severance Comp -

[rocknrolls2]

Company maintains a 401(k) for its employees. To prevent deferrals from severance pay, Company's systems automatically shut off all deferrals once employee's status was changed to Terminated. The final 415 regs amended the definition of compensation to provide that certain post-employment compensation that would have been paid had the employee continued in employment must be taken into account as long it is paid by the later of 2 1/2 months after termination of employment or the end of the limitation year. The regs also amended the 401(k) regs to make it a requirement that the compensation satisfy the 415 definition including the post-termination compensation revisions of the 415 regs.

Here is my question: while it is my understanding that it is mandatory that the definition of compensation include compensation which would otherwise have been paid to the employee while active (e.g., base salary payments) but which happens to be paid after termination of employment but within the specified timeframe, can the plan choose not to include such post termination payments?

[401_4_ever]

They could choose to do so, but they would not be eligible for the 414(s) safe harbor definition of compensation.

[rocknrolls2]

However, for an individually designed plan that does not mean a whole lot since 414(s) is only relevant in nondiscrimination testing and not in determining the amount of contributions to the plan.

[ak2ary]

Further if the participant is not eligible to defer from any paycheck received after termination of employment, it appears that 414(s) could apply since it allows you to exclude pay while not eligible to participate.