Section 415(c) Treasury regulations clarify that compensation can include post-severance compensation if it is paid within the later of 2½ months after separation from service or the end of the calendar year in which severance occurs. 26 C.F.R. 1.415(c)-2(e)(3). The governingTreasury regulation is published at www.law.cornell.edu/cfr/text/26/1.415(c)-2

Post-severance compensation eligible for deferral

• Regular compensation for services during the employee's regular working hours:

  • salary

• Compensation for services outside the employee's regular working hours:

  • overtime

  • shift differential

  • commissions

  • bonuses

  • other similar payments for work outside regular working hours

• Back pay for lost wages, such as grievance payments

• Unused bona fide sick and vacation or other leave pay, if the employee
  would have been able to use the leave if employment had continued

Compensation not eligible for deferral

• Early retirement incentives

• Early retirement notification incentives

• Grievance payments that are not back pay for lost wages or salary