Is this Severance or even Plan Compensation

[jkharvey]

We have a client that changed a full time employee to part time.  The employer actually prepared and the employee signed a document that reads "Severance Agreement and General Release".  This document states that the employee and the company separated on Marcy 31, 2017.  There is another letter that is an "offer" for the part time employment effective as of 4/3/2017.  As part of the Severance Agreement the Employer agreed to make monthly payments of XX amount for a period of one year and this amount would be paid in 26 installments on the normal payroll schedule.  I know that if this was pure severance, it would not be plan comp.  I am hung up, however, on the concept of "severance".  Did this employee actually sever employment?  Just because a document was prepared and signed does not create severance (form over substance)?  If we decide there isn't severance, would this NOT be Plan comp for some other reason that I am missing?

Thanks 

[RatherBeGolfing]

14 minutes ago, jkharvey said:

 As part of the Severance Agreement the Employer agreed to make monthly payments of XX amount for a period of one year and this amount would be paid in 26 installments on the normal payroll schedule.  I know that if this was pure severance, it would not be plan comp.  I am hung up, however, on the concept of "severance".  Did this employee actually sever employment?  Just because a document was prepared and signed does not create severance (form over substance)?  If we decide there isn't severance, would this NOT be Plan comp for some other reason that I am missing?

We don't exclude severance pay simply because it is paid after separation.  In fact, we can include post-severance pay if it would have paid to the employee if s/he continued to work.

We exclude severance pay because it is not compensation for services rendered, it is compensation for terminating the employment agreement. 

As you have described the facts, you have a severance agreement which includes the promise of 26 installment payments.

Were the 26 payments for services rendered?

Would the 26 payments have been made had the employee not agreed to sever employment?

I don't think the fact that the employee was re-hired matters here.

 

[jkharvey]

Thank you RatherBeGolfing.   You explained what I was trying to wrap my brain around.  The fact that this payment would not have been made had she not agreed to the reduction to part time.

[RatherBeGolfing]

Happy to help