Short Term Deferral

[Guest Buzzman]

If an unqualified deferred compensation plan provides for vesting of an employer contribution upon the earlier of (i) death, (ii) disability, (iii) termination without cause or (iv) one year from the date of the contribution, and that payment will be made in lump sum within 30 days of vesting, does the plan meet the short term deferral exception to 409A?

There is a substantial risk of forfeiture and the payment would occur before the end of applicable 2 1/2 month period. My concern is that allowing earlier vesting and payment upon death, disability and termination without cause might somehow change the analysis, though I don't see how.

Any thoughts would be greatly appreciated.

[Guest Mr. Kite]

If an unqualified deferred compensation plan provides for vesting of an employer contribution upon the earlier of (i) death, (ii) disability, (iii) termination without cause or (iv) one year from the date of the contribution, and that payment will be made in lump sum within 30 days of vesting, does the plan meet the short term deferral exception to 409A?

There is a substantial risk of forfeiture and the payment would occur before the end of applicable 2 1/2 month period. My concern is that allowing earlier vesting and payment upon death, disability and termination without cause might somehow change the analysis, though I don't see how.

Any thoughts would be greatly appreciated.

As long as the employee is required to continue working until the specified event. "Disability" would probably have to be defined in terms of total disability to have a SRF.

A right to payment subject to involuntary termination w/o cause is subject to SRF. See 1.409A-1(d)(1).

I have seen the death and disability payment provisions treated as "given," and don't know the authority for that. In fact, I wonder if this language from -1(d)(1) is applicable: "An amount is not subject to a SRF merely because the right to the amount is conditioned, directly or indirectly, upon the refraining from the performance of services." Does this mean that the right to the payment during the 1-year period is conditioned on the employee's refraining from the performance of services (due to death or disability) and therefore is NOT subject to a SRF? This may be going a bit too far.

[Guest Buzzman]

Thanks - I too had taken it as a given that vesting upon death and disability occurring prior to the actual vesting date would be accepted as a short term deferral if payment made with 2 1/2 months of lapse of SRF, but can't find an authority for it.

If an unqualified deferred compensation plan provides for vesting of an employer contribution upon the earlier of (i) death, (ii) disability, (iii) termination without cause or (iv) one year from the date of the contribution, and that payment will be made in lump sum within 30 days of vesting, does the plan meet the short term deferral exception to 409A?

There is a substantial risk of forfeiture and the payment would occur before the end of applicable 2 1/2 month period. My concern is that allowing earlier vesting and payment upon death, disability and termination without cause might somehow change the analysis, though I don't see how.

Any thoughts would be greatly appreciated.

As long as the employee is required to continue working until the specified event. "Disability" would probably have to be defined in terms of total disability to have a SRF.

A right to payment subject to involuntary termination w/o cause is subject to SRF. See 1.409A-1(d)(1).

I have seen the death and disability payment provisions treated as "given," and don't know the authority for that. In fact, I wonder if this language from -1(d)(1) is applicable: "An amount is not subject to a SRF merely because the right to the amount is conditioned, directly or indirectly, upon the refraining from the performance of services." Does this mean that the right to the payment during the 1-year period is conditioned on the employee's refraining from the performance of services (due to death or disability) and therefore is NOT subject to a SRF? This may be going a bit too far.