Elective Deferrals from Severance Pay and Accumulated Vacation Pay (Posted February 8, 1999) Technical Tip 1: The following question and answer were from the IRS Q&A session at the 1998 ASPPA Annual Conference: What is the IRS position on elective deferrals from certain payments following the termination of employment, such as severance pay and accumulated vacation pay? IRS Response: We do not believe that deferrals can be made by someone who is not an active employee. If payments classified as above are paid PRIOR to the termination of employment, the participant can defer from those amounts (assuming the plan otherwise allows such elections). If the participant has separated from service and these amounts are paid at a later time or over a period of time, no deferrals may be made. View all Tips © 1999-2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.