Concurrent with the issuance of proposed regulations under Internal Revenue Code ("Code") Section 415, the Internal Revenue Service has also issued proposed regulations under Code Sections 401(k), 403(b) and 457.
Concurrent with the issuance of proposed regulations under Internal Revenue Code ("Code") Section 415, the Internal Revenue Service has also issued proposed regulations under Code Sections 401(k), 403(b) and 457. These proposed regulations provide that amounts received by an employee following his or her severance from employment may not be deferred to a 401(k) plan, a 403(b) plan or a 457 plan unless the amounts are considered compensation under Code Section 415. Under Code Section 415, only the following post-employment amounts paid within 2-1/2 months after termination are considered compensation: (1) amounts attributable to services performed while an employee, but not paid until after the employment relationship ended, and (2) payments for accrued sick, vacation or other leave that the employee would have been able to use if the employment relationship had continued. This rule does not apply to amounts paid to a former employee engaged in qualified military service that are not in excess of compensation he or she would have received had he or she not entered the service. Amounts that are severance pay (for example, amounts paid to a terminating employee to compensate the employee for an unexpected job loss), unfunded nonqualified deferred compensation, or parachute payments are not considered compensation under Code Section 415 and cannot be contributed to these plans. The proposed regulations are anticipated to be effective for limitation years beginning on or after January 1, 2007, but may be relied upon pending issuance of final regulations.
For more information on the ability to defer post-termination amounts to a qualified plan, please contact Margaret Bernardin, 407-418-4365, or any member of the Ford & Harrison Employee Benefits Group.