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401K - In Final Termination Pay-out

Should we deduct 401K from a terminated employees vacation/pto payout? This is a separate check from their regular check which would have 401K deductions. Or, is it according to our 401K plan?

Comments

  • Does your plan otherwise include vacation/pto as eligible compensation?
  • Thanks for your help, just confirmed thru our plan that we will take the 401K deduction.
  • so i'm confused, why would it matter what the company plan says? when the employee signs up, aren't they agreeing to have whatever amount withheld from their compensation? how would the last check differ? it's still compensation.
  • The plan document ALWAYS matters because it is the controlling legal document that allows the deferrals to happen, and plan documents can be written differently by every company and violating your written plan could carry big penalties. So when an employee signs up they are agreeing to have the amount withheld from whatever the plan says their eligible compensation is. So maybe the plan document says vacation pay is not considered compensation for deferral purposes, or maybe the plan document says no deferrals will be taken from any paychecks issued after termination. Rule#1 with 401ks is follow your plan document.
  • rrupert
    rrupert ✭✭✭
    Having worked 7 1/2 years for one of the largest HR consulting firms in their 401k group, I totally agree with David. It is VERY important to exactly follow the 401k plan document. Even a small error can be costly. Many can not just be un-done easily. Very few have easy fixes.

    And yes, 401k plan compensation can have many different definitions/formulas. Actually it used to be a lot worse than it currently is. It has standardized a bit with prototype plan documents...but still can be different. If your payroll system hasn't been audited against the 401k plan document lately, it is worth the time it would take to be sure it is correct.

    And with the 401k errors -- you actually not only have the IRS involved due to the pre-tax benefits, but also the DOL due to ERISA. Othen BOTH would charge penalties for the same mistake. Not a fun thing to be in the middle of. Please don't ask how I know!
  • Mindy wrote:
    The plan document ALWAYS matters because it is the controlling legal document that allows the deferrals to happen, and plan documents can be written differently by every company and violating your written plan could carry big penalties. So when an employee signs up they are agreeing to have the amount withheld from whatever the plan says their eligible compensation is. So maybe the plan document says vacation pay is not considered compensation for deferral purposes, or maybe the plan document says no deferrals will be taken from any paychecks issued after termination. Rule#1 with 401ks is follow your plan document.

    oh geez...... i guess i was under the assumption that the IRS actually set some kind of guidelines in the actual 401k irs code.

    great... now i've got the feeling i have to read some boring ass company 401k plan. thanks guys!
  • i guess i was under the assumption that the IRS actually set some kind of guidelines in the actual 401k irs code.

    They do - but there are options in the guidelines - Since the employer may make contributions to the 401(k), the employer gets to decide which compensation is included in the formula.

    One of the (not so much guideline) rules is that you make the contributions based on the provisions of the plan. If you do something else, you are not in compliance with the plan and, therefore, you are not in compliance with the regulation. The plans must be written within the guidelines (that's what guidelines are - the boundaries for what you can do within the rules - sort of like the sidelines in football or tennis - go outside, and you are out of bounds - inside there are a number of things you can do so long as you play within the rules. But you don't have to do all of them. You do have to decide how you want to play (touch football, high school, college, pro, area, flag) - the basic rules are the same, but the details are determined by which game you are playing - tackle someone in touch or flag football, and you might be ejected from the game.
  • Hey I got a quick question if anybody can answer it I go through standard and I recently took a withdrawal as I was fired at will no reason given they told me I was going to receive a check of 12000 something and I was approved and it was going to be mailed out in the next day !I received a check that was 6000 something and now they are telling me that's it. I only had 6,000 something in there but my withdraw statements show I pulled out 12000 something and it's been weeks since. I keep calling up they say that I've never had that in there and I know that's a lie because I already pulled out 25,000 out of it last year! now they are telling me my account is zeroed out but the lady told me I had a check for 12000 coming they were showing two disbursements on the page that equal 12000 in some dollars to the Cent as what I was supposed to get in the first place ! They suggested it could have been a computer glitch pretty much I'm not getting 12000 I'm getting 6000 something tax down to 4800 is there anything I can do. I also asked for hardship. I dod not get it I call up there and argue with the same person 5 times. They said oh you have a $307 check after taxes 242 left now they sent that to me but I am still showing 12000 withdraw and that $303 that equals 442 after taxes. I'm going to be kicked out of my house my landlord thinks I lied to I have 15 and a 4 that both have birthdays next week I've worked the same place for 7 years I got written up for not being able to make office meetings on my one of my 5 days off a month that I homeschool my kids now and can't pay him my back rent I literally was the only one that had to work the last holidays Thanksgiving Christmas Eve Christmas New Year's Eve New Year's and got 2 days off and come in and they handed me a paycheck after 7 years and said just not working out just not working out I am the only employee that has kids and they literally but everybody else have days off besides me. No reason given just told me at will not working out now I've been waiting for unemployment in Washington State 7 weeks and still have not been approved. I'm really scared I've only been on Unemployment one time my whole life and that was for 3 months at the start of the pandemic do the lockdown and the Copa camp that was across the street with armed guards scary place to work.