Continuing 401(k) deferrals while using vacation prior to actual DOT?

[Guest TaxedToDeath]

In situations where an employee is terminating employment, but decides to take all of his accrued vacation first, does that employee continue to be an eligible employee for purposes of making 401(k) deferrals? For example, if an employee has six months of accrued vacation, works for the employer through 12/31/2012, then takes vacation for the first six months of 2013 and officially terminates employment 6/30/2013, may 401(k) deferrals continue to be made from the compensation paid to the employee for the first six months of 2013 while he is taking his accrued vacation? Or would the employee be treated as not being an eligible employee after 12/31/2012 because he is no longer performing services for the employer after that date?

[GMK]

Keep deferring. If he's still an employee, vacation pay at the end of his career is treated the same as vacation pay during any other period of his employment.

Could change company policy and not allow vacation after notice of termination. Just pay out the accrued vacation at termination. Seems a little strange that the company would approve 6 consecutive months of vacation except in rare circumstances, but it's their choice.

[ESOP Guy]

I might be guilty of wanting to over think this (like that never happens on this board) but let me ask a follow up question:

Is the person who is on this 6 months of vacation still going to be eligible for health insurance (assuming he was while not on vacation) and so forth?

[Guest TaxedToDeath]

Keep deferring. If he's still an employee, vacation pay at the end of his career is treated the same as vacation pay during any other period of his employment.

Thanks, GML, but what is the authority for this treatment? The DOL regulations re service? ERISA? Something else?

ESOP Guy, I am only asking in the context of 401(k) deferrals and whatever authority dictates the eligibility of an employee to make those deferrals, so health benefits are outside the scope of this scenario.

[GMK]

I don't have a cite for you. Someone out there may.

I'm just saying that as long as the person is an employee, going on paid vacation does not change her/his status as a participant in the 401(k).

[masteff]

ESOP Guy, I am only asking in the context of 401(k) deferrals and whatever authority dictates the eligibility of an employee to make those deferrals, so health benefits are outside the scope of this scenario.

ESOP Guy asked about those other things because they are indicative of whether the employee is being treated as still employed. COBRA eligiblity can be a biggie for demonstrating that a termination occurred.

Your plan text is all the citation you need. The situation is almost entirely definitional and will be governed by the plan. What is employment? What is eligibility? What is eligible compensation? Does the plan refer to hours of service or hours worked and what hours are counted? Does the plan refer to leaves of absence and what does it consider to be a leave?

[ESOP Guy]

ESOP Guy, I am only asking in the context of 401(k) deferrals and whatever authority dictates the eligibility of an employee to make those deferrals, so health benefits are outside the scope of this scenario.

ESOP Guy asked about those other things because they are indicative of whether the employee is being treated as still employed. COBRA eligiblity can be a biggie for demonstrating that a termination occurred.

Your plan text is all the citation you need. The situation is almost entirely definitional and will be governed by the plan. What is employment? What is eligibility? What is eligible compensation? Does the plan refer to hours of service or hours worked and what hours are counted? Does the plan refer to leaves of absence and what does it consider to be a leave?

Thanks Masteff. I have been on the road but you hit on the head. My point is as you say can we tell if the person is still an employee or not. If the person is still employee it seem more likely they can defer, if terminated this pay is some kind of severance pay and you will follow those rules.