Q. My client is going to sever employment in June, and will receive unused leave pay compensation in September. Can she have 403(b) deferrals taken from that September check?
A. Yes, as long as the unused leave pay would have been available for her to use had she stayed with the employer. The final 403(b) regulations (as included in the final 415(c) regulations) makes it clear that the ability to make 403(b) deferrals post-employment is granted as long as:
- the amounts being paid post-employment represent amounts an individual would have received had he/she stayed with the employer; and
- as long as they are paid by the end of the calendar year of severance, or, if later, within 2½ months.
The salary reduction agreement must be in before the amounts are made available. Incidentally, the rule also applies to salary reduction agreements to a 457(b) plan, as long as the agreement is in place before the first day of the month in which the post-employment amount will be paid.