What does "separation pay" include

[britoski]

I'm having a bit of a disagreement with some of my colleagues. The issue is what amounts are totaled for purposes of the 409A separation pay plan exception. We can't agree on whether amounts that are exempt from 409A under the short term deferral exception are counted against the total permitted be paid out pursuant to a separation pay plan.

In other words, is the following permissible:

409A separation from service, participant receives a lump sum of $200,000.

One year later, (beyond the short term deferral period), participant receives an additional $400,000.

Clearly, the first amount is exempt under the short term deferral excpetion. The question is, is the second?

I'd love to know your thoughts.

[Guest Harry O]

It is not exempt as a short term deferral but is exempt under the separation pay rules. This is referred to as "stacking" the exemptions and is perfectly permissible.

[britoski]

It is not exempt as a short term deferral but is exempt under the separation pay rules. This is referred to as "stacking" the exemptions and is perfectly permissible.

Thanks- that's very helpful! I found exactly what I needed.

[401 Chaos]

I guess the one caveat to that is that it is ok to stack and exempt provided the $400,000 otherwise complies with the separation pay plan exemption--in particular that the $400,000 is not more than 2 times prior year's annualized compensation.