Deferrals from back pay award

[davef]

If a former employee receives a back pay award under ADEA, can that person defer a portion of the award into the former employer's 401(k) plan? (Apparently, the person talked to someone at the IRS who said that the deferral could be made as long as the award related to lost wages.) The document defines "compensation" as that which is paid to an employee. Do we treat this person as if they were an employee, since they would have been able to defer if not for the fact they were terminated in violation of ADEA?

[Guest Laura]

I think you need to treat the contribution as a correction under EPCRS. In other words, create a fiction that the employee was inadvertently ommitted from participation under the 401(k) plan. I think the prescribed remedy under EPCRS is for the employer to make a non-elective contribution on behalf of the employee in the amount of his deferral percentage (or, if unavailable, the ADP) plus match, if applicable, plus the earnings that would have accrued had the contribution been made on a timely basis.

Otherwise, I don't see how you can get the money into the plan since the deferral election will be made well after the compensation was earned, in direct violation of Section 401(k).

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