Severance Pay - Accrued but unused sick leave

[benpat3]

If a school district pays a retiring teacher a severance payment based on accumulated sick leave (a teacher with no accumulated sick leave would be entitled to no severance) and allows the teacher to receive payment in lump-sum at the time of retirement or receive payment in the following year, does the school district need to be concerned about 409A regs? Do they need to offer an election to the teacher?

[QDROphile]

Section 409A is a concern if someone who has a right to payment in a year receives payment in a subsequent year. That is not to say that the situation you describe violates 409A.

[benpat3]

Section 409A is a concern if someone who has a right to payment in a year receives payment in a subsequent year. That is not to say that the situation you describe violates 409A.

That is what concerns me. In this situation the teachers appear to have the option to take in a lump-sum immediately upon retirement or in the next calendar year following retirement if elected. It is the elected part that I am struggling with. I believe that technically this situation is not subject to 409A because it is compensation payable under a sick leave program which is excluded from the definition of non-qualified deferred compensation under the regulations. But I can not stop thinking about the ability for the teacher to request payment in a subsequent year, now if the school district automatically paid the amount in the subsequent year then I do not believe there is any issues with 409A. Any thoughts? Does anyone agree or disagree with my conclusion on the sick leave aspect?