Post-severance compensation

[Belgarath]

Grrr.... I thought I understood this, but some discussion recently now has me questioning myself.

Calendar year plan. Participant terminates employment 12/31/18. Receives final paycheck - just normal wages only - on 1/4/19. Plan uses W-2 compensation, and the determination period is also calendar year.

Plan uses the "defaults" for 415 post-severance compensation purposes - that is, normal qualifying post-severance compensation categories are included for 415 purposes, and the plan does NOT utilize the "administrative delay" rule - also commonly referred to as the "first few weeks rule."

For PLAN compensation, the plan includes,  for all contribution categories,  the allowable post-severance compensation categories - regular pay, leave cash-outs, etc..

So, the payment of wages received on 1/4/19 should have deferrals withheld, and the participant should receive a 2019 safe harbor nonelective, and therefore, for a cross-tested plan, also receive gateway. But since 1000 hour/last day, receives no other PS allocation.

Participant Included in all other 2019 testing.

Am I off my rocker on this?

 

[RatherBeGolfing]

3 minutes ago, Belgarath said:

Am I off my rocker on this?

Nope I think you have it just right. 

A similar question was asked at ASPPA Annual a few years ago while we still had the IRS Q&A, and they agreed it would be plan comp for the next year even though the participant had no hours worked in that year. 

[Belgarath]

Thanks. Brings up an interesting side question - suppose this person never satisfied the 1 YOS (1,000 hour) requirement to eligible to receive a PS allocation in the first place. They are "benefiting" under the employer nonelective portion of the plan, so still receive gateway, right, even though not eligible for any other PS contribution?

And GOOD LUCK in the coming days.

[duckthing]

55 minutes ago, Belgarath said:

Thanks. Brings up an interesting side question - suppose this person never satisfied the 1 YOS (1,000 hour) requirement to eligible to receive a PS allocation in the first place. They are "benefiting" under the employer nonelective portion of the plan, so still receive gateway, right, even though not eligible for any other PS contribution?

If you're disaggregating for testing (I'm assuming you have something like immediate or 6-month eligibility for 401(k)/SH and 1 yr/1000 hrs for PS/match) they would fall in the statutorily excludable plan and would not need a minimum gateway contribution -- that plan probably has no HCEs, and even if it does, they're not getting anything more than the 3% SHNE themselves.

If not disaggregating, then yes. But even if they need an additional 2% of comp on top of the SHNE it's probably not a ton of money... they never met the 1 yr/1000 hrs initial eligibility requirement for PS, so it's not like they walked out with $50K in unused paid leave!