distribution for employee receiving severence pay

[pmacduff]

ok - employee is let go but given 2 or 3 years of severence pay; therefore still on the books.

Employer stopped 401(k) deductions from severence per the Plan provisions.

Participant is requesting distribution to rollover his account balance.

Since the severence pay is not "earned income" and there are no "hours" associated for plan purposes, can this participant take distribution of his balance?

The plan states that distributions can occur as soon as administratively feasible following termination.

I guess I'm stuck on whether or not he is considered "terminated" for purposes of payout.

[ESOP Guy]

One of the things I tend to ask clients when they ask me these questions is to ask them questions about other "markers" of them being terminated or not.

1) Did they give this guy COBRA notice already? If so, that would seem to indicate they think he is terminated.

2) Can he apply for unemployement benefits currently? If so, that would seem to indicate they think he is terminated.

3) Is the person subject to recall? If so, it seems like it might be more gray.

I think you get the point. It might help to look beyond just the plan to decide if a person is terminated or not.

[jpod]

Saying he is "still on the books" clouds the issue. If all you mean is that his severance is being run through normal payroll and subjected to normal tax withholdings, which would be appropriate, then it sounds to me like there are no indicia of current employment and he is terminated. PMacduff's points are worth considering, however.

[pmacduff]

Yes - severence is being reported on a W-2 form. I am checking with the client regarding other benefits and their exact position on his status.

Good thought on the unemployment benefits, too.

The client's intention is to allow the former employee to take rollover of his balance.

I wanted to be sure that we were all clear on his status with them since the severence was coming through to him on a W-2 and the definition of comp in the Plan Doc is W-2 wages prior to any pretax deductions.

The associated hours worked is reported as 0.

Thank you for the replies.