lump sum payout of vacation pay

Is a final lump sum payment of vacation pay eligible for 401k an match? We match each paycheck

Our plan excludes pay after termination

We did allow the employee to defer but no match

we discovered an issue in our HRIS system wasn't calculating match for certain employees and are doing an audit of those who deferred but no match 

thanks, alexa

alexa, generally a lump sum vacation pay cashout is "good" compensation (for deferral and matching, and other contribution purposes) under the Code and regs, as long as paid within the later of the end of the plan year in which the employee terminated or 2-1/2 months after termination. See Treas. reg. sec. 1.415(c)-2(e)(3)(iii)(A). As for whether it is compensation for purposes of your particular plan, that will depend on the plan document. If it was compensation for deferral purposes under your plan, it was probably supposed to be match, but that could only be determined for sure by reviewing your plan document.

What does the plan document say?  How does the plan document define covered compensation for deferrals?  How does the plan document define covered compensation for employer contributions?  

We tended to write plan provisions so as to exclude compensation paid post separation.  Sometimes, we wrote plan provisions to exclude certain elements of compensation as well - and tested the definition under IRC 414(s). See:   26 CFR § 1.414(s)-1 - Definition of compensation. 

We checked box in our prototype that we will exclude any compensation paid post termination

Our attorney indicates that even the last paycheck which may include regular pay

This was deferred on but not matched (system glitch stops match when anyone goes to inactive status)

ERISA counsel indicates we need to refund the 401k deferral