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Highly Compensated and post-severance compensation

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403(b) plan for a 501(c)(3) organization - now owners. A highly compensated employee terminates on, say, 12/31/2015. Receives a last paycheck in early January of 2016. A deferral is withheld from that final paycheck in 2016. Plan has a last-day requirement for match, so no match received on that 2016 deferral.

When testing for coverage/nondiscrimination, is he counted as a HC for 2016? Or since he formally terminated employment on 12/31/2015, is he not considered HC for 2016?

P.S. - don't waste any time on this, as it is purely "idle" curiosity - didn't have any effect on any testing, etc.

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If he terminated on 12/31/2015 the amount he received in 2016 was either severance or pay for work done in 2015. If the former, it was not 415(c) comp and could not be deferred. If the latter, it was a deferral for 2015, not 2016.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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What does the Plan say? 

Our VS document says that the participant's salary deferral election applies to Plan Compensation.  Plan Compensation is defined as Total Compensation actually paid to an employee during the plan year.  We use the post severance compensation provision that amounts that would have been received if the employee remained in employment and are paid within the specified period are considered as Plan Compensation.  We do not use the few weeks rule that lets you count compensation earned but not paid during the year.  Put it all together and for our plans, the compensation and deferrals count in the plan year the compensation is paid.  With different plan provisions, you can get a different answer. Whatever provisions you have, you would want to make sure it is applied consistently.




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  • 1 month later...

How do you get an owner for a 501(c)(3) organization?

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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