401k deferral while on disability

[Guest hitt24]

Can a participant defer 401k dollars into a 401k plan while they are on disability? The compensation definition is silent on this except that it says "compensation paid while an employee is not a participant in the plan is excluded". Does this mean that disability pay is excluded?

[masteff]

More important is the source of the disability payments... is it paid directly by the employer or by a third-party, such as an insurance company. Who's the payer in your case?

[Guest hitt24]

The hourly are paid by a third party and the salaried are paid by the employer.

[JanetM]

Unless there is other plan language that says those on LOA can't participate then the salary folks getting paid by the company can defer. Hourly paid by 3rd party can not.

[masteff]

it says "compensation paid while an employee is not a participant in the plan is excluded".

I'll ditto what Janet said and suggest you review the definitions of participant and leave of absence. The wording you quoted above likely pertains to income before the participant's initial eligibility (and possibly to post-termination payments, like late payouts of severance, vacation time, bonuses, etc).

[davef]

I think you need to look at the 401(k) regs first. If you follow the definitions of "eligible employee" (who is the person making the cash or deferred election -- see Reg. Sec. 1.401(k)-1(a)(2)) and the definition of "employee" (see Reg. Sec. 1.410(b)-9), I believe you get to the result that only persons performing services for the employer can make deferrals under a 401(k) plan. Most disabled people don't meet this criteria. I also recall that the IRS has taken this position of a number of occasions.