Hello--

I monitor this board almost daily, but have not posted until now. My husband accepted a voluntary separation arrangement (an "early-out") with his employer last January. Under the terms of the agreement he was to cease active employment but would be considered an "employee-consultant" for the next two years. As an "employee-consultant" he would be eligible to continue participating in the employer's 401K plan, "to the extent permitted by applicable law and regulation." The other day we were notified that his 2008 contributions to the plan, both regular and catch-up, had been zeroed out. When he called HR to ask why, he was told that "the IRS had changed the rules."

Does anyone know of a recent IRS ruling that might be applicable to the situation I have described? Thanks!

My husband accepted a voluntary separation arrangement (an "early-out") with his employer last January. Under the terms of the agreement he was to cease active employment but would be considered an "employee-consultant" for the next two years. As an "employee-consultant" he would be eligible to continue participating in the employer's 401K plan, "to the extent permitted by applicable law and regulation." The other day we were notified that his 2008 contributions to the plan, both regular and catch-up, had been zeroed out. When he called HR to ask why, he was told that "the IRS had changed the rules."

Does anyone know of a recent IRS ruling that might be applicable to the situation I have described?

No. There's an important piece of the puzzle missing. How much was he to be paid as an "employee-consultant"? The maximum 401(k) contribution is 100% of compensation, and 100% of zero is still zero.

Phil

Hello Phil--

I didn't realize that you had responded to my post -- I kept looking for a response and decided that my question was not of sufficient general interest for anyone to comment. Don't know how I missed yours.

To answer your question, DH is receiving full salary for the two-year period during which he is considered an "employee-consultant." Last year, he was able to contribute to his 401K. This year, he gets a letter telling him that "due to a change in IRS regulations," he can no longer contribute to his 401K.

Christine

DH is receiving full salary for the two-year period during which he is considered an "employee-consultant." Last year, he was able to contribute to his 401K. This year, he gets a letter telling him that "due to a change in IRS regulations," he can no longer contribute to his 401K.

I'm not aware of anything, but that doesn't mean there wasn't something. Were I he, I'd start by asking what regulations changed.

It may wind up that he needs to consult a lawyer to find out if the company is breaching his separation agreement.

Phil

Phil, I really appreciate your taking the time to respond to my post. We'll see what our next step is.

Thanks

Christine