415 Compensation

[KevinMc]

 

Would severance pay be considered be considered post severance compensation in the definition of 415 Statutory Compensation?  I'm pretty sure it would just want to get someone's confirmation.  Thanks for any help.

[CuseFan]

No, severance pay is not considered by the IRS as plan compensation in any manner. It is not considered payment for services. 415 post severance compensation is for payment of amounts after termination of employment to which the employee would have been entitled had the employee continued in employment, such as accrued vacation time, paid sick leave, delayed bonuses, etc. Severance payments would not be made to an employee absent termination and therefore not post severance compensation. This was always the IRS position on severance pay, even before the 415 post severance compensation regulations (which only confused the matter because of the use of the term "severance"), and employer compliance back in the day was inconsistent to be sure.

[Gilmore]

Two employees both terminate on 8/21/2025.  Both are paid the equivalent of 6 months pay as a severance package.  One is paid their severance on 8/20/2025 and one is paid their severance on 8/22/2025.  Is the severance compensation treated any differently because one is paid on or before the date of severance and one is paid after the date of severance?  I have asked this question a couple of times over the years to a couple of respected ERISA attorneys, and the opinion of each was the severance paid on or before the severance date was plan compensation.  

[CuseFan]

2 hours ago, Gilmore said:

ERISA attorneys, and the opinion of each was the severance paid on or before the severance date was plan compensation.  

If it otherwise fits within the definition of compensation, then yes, I can agree with that. You can often structure such payments as retention "stay until" bonuses and count as (post-severance) compensation. If the company has a formal/written severance plan and payments are made pursuant to that I think you have a hard time justifying it as compensation regardless when paid, in my opinion. Certainly, I would defer to qualified legal counsel opinions.