Q. The payroll department of the local school district has asked whether employees can make elective deferrals in their 403(b) plans after they have severed employment. Can they?
A. Yes. If the amounts to be paid after severance are amounts they would have received had they stayed (such as job performance and bonus pay), or had available for use if they had stayed (such as unused sick leave pay), elective deferrals can be made to their 403(b), and salary reduction contributions can be made to their 457(b) plan. But the severance amounts have to be paid by the end of the calendar year in which severance occurred — or, if later — within 2½ months of severance of employment. This was made clear in the Code Section 415(c) final regulations, and reaffirmed as applicable to 403(b) in the final 403(b) regulations.