Is it still the case that a payment at termination for unused vacation (accrued from prior years) is not includible compensation and therefore not eligible to have deferrals taken from it?

The proposed 403(b) regulations state that there'll be guidance forthcoming on whether 401(k), 403(b), or 457 deferrals may be taken for compensation paid after one's employment has been severed. Officially it's unclear although IRS officials have informally voiced the opinion that a plan shouldn't take deferrals from post-termination compensation.

The IRS has issued PLRs which allows accumulated vacation pay to be contributed by the employer to a Qualified plan before termination which would be eligible for a roll over to an IRA. Contribution is not subject to FICA taxation. Plan requires that employee have no right to receive excess vacation pay in cash. The same method can be used for 403(b) plans. IRS has such programs under review because of the fica issue.

Have you concluded that section 409A would not apply to this situation?

How would 409A apply to accumulated vacation pay which is exempt from 409A under the notice?