401k electively deferring nonqualified deferred comp payment

[J Simmons]

Situation: ER has a 401k plan. ER establishes a nonqualified deferred compensation plan calling for payments of $X each year for the year the particular EE retires and next 3 years. The $X payment in year of retirement will be reported on a Form W-2 along with the EE's earnings for that part of the year before retiring. (The 3 payments in future years will be reported on Forms 1099.)

Question: If EE before retiring this year elects and before the $X payment for this year becomes available, may that $X payment be electively deferred into the 401k plan?

[Guest Sieve]

No. The new final Section 415 regs allow deferrals on deferred compensation payments (if the plan so provides). But, if the employee was not entitled to receive that payment on date of termination, then it is not compensation from which deferrals can be made.