Plan provision requirement for 415 Regs

[Guest L337pwner5]

I have in my head that the a qualified plan's definition(s) of compensation must explicitly state the 2 1/2 month rule in 1.415©-2(e)(3) in order to be considered compensation within the meaning of 415©(3). But looking at the regs, this doesn't appear to be the case. The regs do not use the language "a plan must provide...." There are a number of things listed in 1.415©-2(e) that a plan "may provide," but nothing that a plan "must" or "shall" provide. It seems as though a plan document can pass muster without specifically mentioning any of the timing rules in the regs; and if a plan takes that approach, the regs set out a number of default rules and the mandatory 2 1/2 month rule that will apply without any explication in the plan document.

Has the IRS said somewhere that qualified plans must contain language reflecting the 1.415©-2(e)(3) rule about compensation paid after termination of employment, or did some sort of excessively-verbose-plan-document-loving elf plant the idea in my head? Has anyone received comment from the IRS on their cycle B filings requiring this language?

[david rigby]

"...may provide..." is correct.

That is, the plan sponsor has the option of whether or not to include such compensation.

[Guest L337pwner5]

But is a plan provision required to reflect the first sentence of 1.415©-2(e)(3): "Any compensation described in paragraph (e)(3)(ii) of this section does not fail to be compensation..."? As I understand it, the plan sponsor has no option to disregard regular pay after severance. But does the plan document have to say as much?

[Tom Poje]

I can't speak for other document providers. we are using Corbel's but I assume most if not all will have similar language.

they have an amendment for the final 415 regs.

section 2.1 is labeled 'default provisions' - unless the employer elects otherwise in section 2.2 the following defaults shall apply blah, blah blah

just before section 2.1 is a note: The ER needs to complete the questions in Section 2.2 in order to override the default provisions set forth below. If the Plan will use the default provisions, these questions should be skipped.

buried deeper in the amendment are things like

3.7 Excess annual additions

....handle in accordance with EPCRS (that is a real paraphrase)

so, I'd say you want (or need) the amendment. you end up getting the defaults if you do nothing, but you also get all the other language you probably want.

[Guest Sieve]

L337 -- I'm not so sure that a plan MUST include compensation paid after severance from employment--at least for purposes of deferrals, anyway. I can see, however, how you could read the regs (specifically, Treas. Reg. Section 1.401©-2©(3)(i)) to require that post-severance payroll must be included in Section 415 compensation, especially in light of the provision in that reg which permits certain other amounts to be included in Section 415 if "the plan . . . provide . . .". In any event, even if the inclusion of those amounts in Section 415 compensation is mandated, I think the plan should include the appropriate conditioning language (regular payroll amounts, paid within 2-1/2 months after severance or, if later, . . . ., etc.)

From a practical perspective, I think the language certainly should be in the plan for deferral purposes (to clarify whether deferrals will be permitted from such amounts). Some employers may wish to permit no deferrals from compensation paid after termination of employment for fear that some true severance payments may sneak in there. I think most prototypes (Corbel, as an example) will give the choice of not deferring from post-severance compensation (even though that will not be the default).