Expert: Allen - 10/22/2008

Question
My position has been eliminated and my employer has terminated my 401K contributions from my final earned wages and vacation wages. I signed no paper allowing this. I did not call my plan administrator and cease my contributions. 1. Is my employer's action in violation of IRS rules?  2. May I contribute to the plan after termination to reach my maximum allowed contribution for the year even though I am terminated?  I have read the IRS final ruling on this(section 415) and I believe my employer acted improperly.  I hope this is not a payroll or accounting issue, just a 401K issue.  Thank you.

Answer
You should have been able to make a 401k contribution from your final regular salary check. However, permitting 401k contributions from the payment of severance pay and/or unused vacation and sick pay is optional. The plan document can permit these contributions. However the key word is can not must.