I have a question on severance pay. In determining who is highly compensated, do I include severance pay in my definition of compensation?

I would refer you to the Documents definition of compensation. If you use safe harbor "W-2 Wages" - and you would consider severance pay as W-2 Wages - then yes you will need to include them in the calculations.

I concur with EREAD. The plan document controls this issue. Look in the definition section of the document to ascertain what, if any, compensation is exludible.

A word of caution - HCE determination must be made using a definition of compensation as defined in 415©(3). If the plan does not contain a specific definition of compensation for determining HCEs, it might not be sufficient to simply use the overall plan definition of compensation where items could be excluded, causing the definition not to satisfy 415©(3).