The U.S. Treasury Department released final Internal Revenue Code Section 415 regulations in April 2007. Section 415 establishes limits on the annual benefits that may be provided under a qualified defined benefit plan.
There are changes that affect defined contribution plans relating to the post-severance compensation provisions. The rules limit a plan’s ability to count compensation after a participant severs employment. Compensation means the compensation a participant is able to use for deferral purposes into a plan, such as w-2 wages and bonuses. Under new regulations, compensation does not include compensation paid after an employee severs employment such as severance pay, parachute payments, payments from unfunded deferred compensation plans which are triggered by severance. There are exceptions for certain compensation paid by the later of 2.5 months after severance of employment or the last day of the limitation year in which the employee severed employment.
These regulations are effective for limitation years beginning on or after
All plans will need to be amended to reflect the final 415 regulations.
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