Contributing while disabled

[Guest Pennysaver]

Can a disabled employee continue to make 401(k) salary deferral contributions to a 401(k) plan? If so, what is the proper citation for the legislative/statutory/regulatory authority permitting this?

Thanks!

[J Simmons]

A disabled employee is yet an employee, as distinguished from a former employee receiving disability benefits. That is, the fact that the person is disabled and not actively working does not drive the answer.

You should look both at the final 415 regs definition of compensation and the terms of your specific plan.

[Guest MKE]

Pennysaver,

Here is what I found relevant:

1.415©-2(a) provides that compensation includes all items in paragraph (b).

1.415©-2(b) includes "amounts described in 104(a)(3), 105(a), or 105(h), but only to the extent that these amounts are includible in the gross income of the employee."

105(a) describes amounts "received by an employee through accident or health insurance for personal insuries" that is included in gross income to the extent such amounts "are paid by the employer."

105(e) provides that amounts received through an "accident or health plan for employees" are treated as amounts received through accident or health insurance.

1.105-5(a) provides that "an accident or health plan is an arrangement for the payment of amounts to employees in the event of personal injuries or sickness."

It would appear that payments made to a disabled employee on account of their disability (such as payment to a disabled employee under a collective bargaining plan) is "an accident or health plan." Such amounts likely would be included in gross income under 105(a) because they are paid by the employer and are not, under 105(b), paid to reimburse the employee for medical expenses. Thus, it would appear that such payments are included in Section 415 compensation, and that an employee should be able to make elective deferrals from such amounts.

I'm not sure about this analysis. Thoughts?