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Can I reduce a CIC payment and pay a bonus today equal to the reduction?


ERISA-Bubs

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We have a change in control plan where if there is a change in control followed by termination, the executives get a separation payment.

For 280G reasons, we want to reduce the separation payment and give the participants a bonus equal to the reduction in the separation payment. We anticipate a change in control next year. Is this OK, or does it constitute an impermissable acceleration?

Are there any 280G issues I"m missing?

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Is the CIC bonus structured as a short-term deferral? If so, I don't believe it is an impermissible acceleration.

The payment this year may be in contemplation of a CIC and taken into account as a parachute payment, if there is a CIC, but the upside is that you've increased the base amount by 20% of the payment made this year.

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  • 5 weeks later...

...I have never been able to get completely comfortable with the position that it is not an acceleration.

I have to agree. Simplify the question by eliminating the CIC (which I understand doesn't help your underlying 280G question). What you're left with is the direct replacement of deferred compensation with a current payment.

This differs somewhat from the traditional notions of acceleration because it requires employer consent (as opposed to occurring upon employee election), but I don't see the anti-acceleration rules making a distinction based on whether the employer consents.

If such a "reduce and replace" technique were permissible, much of the 409A rules would be inoperative. In that case, all plans would be designed to push both vesting and distribution out as far as possible with the understanding that both could be accelerated at the employer's whim, giving the parties the exact control and flexibility that 409A is designed to deny them.

I also seem to recall something in the regs that would treat any such replacement payments/agreements as part of the same plan, making the impermissible acceleration all that much more naked, but I don't have my regs in front of me.

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  • 2 weeks later...

I also seem to recall something in the regs that would treat any such replacement payments/agreements as part of the same plan, making the impermissible acceleration all that much more naked, but I don't have my regs in front of me.

I now have my regs in front of me. I'm looking at 1.409A-3(f), the key provisions of which are, IMHO:

Except as otherwise provided under these regulations, the payment of an amount as a substitute for a payment of deferred compensation will be treated as a payment of the deferred compensation. and

Even where there is no explicit reduction or offset, the payment of an amount or creation of a new right to a payment proximate to the purported forfeiture or voluntary relinquishment of a right to deferred compensation is presumed to be a substitute for the deferred compensation.

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