Lost Wages

Participant terminated in 2018, in 2021 agreed to a settlement, part of which wage income of $6k monetary consideration for disputed lost wages. The wages were paid as w-2, nothing in the settlement addresses plan contributions.  I am on the fence if this should be considered back pay and allocated an allocation based on 2018, I read 415(c)-2(g)(8) but wondering if the 'disputed lost wage' would have otherwise been included (such as underpaid for hours worked).

Well, that's the crux of the question. I've only seen this a couple of times, and both times they would have been considered eligible "wages" for plan purposes, and as you mentioned, under 415, the allocation would be based on the limitation year to which they relate. Unless the restorative amount was for an otherwise excluded wage category (a bonus, for example) then I'd say you would include it as eligible wages for the plan/limitation year in question.

Thank for the input. Then I guess the next issue is 401k deferrals and that mess, looks like in year of termination 2018, participant had deferrals. Seems like a fun issue to resolve. 

5 hours ago, Dazednconfused said:

Thank for the input. Then I guess the next issue is 401k deferrals and that mess, looks like in year of termination 2018, participant had deferrals. Seems like a fun issue to resolve. 

 

I would agree its eligible compensation, but we're well past the time-frame for it to be counted as 2018 income for 415 purposes.  I would treat the deferrals, under the election in place for 2018, as 2021 deferrals, and the applicable 2018 match or ER discretionary(with lost earnings) as a 2021 QNEC.  Still terminated and with zero hours of service so can be excludable.