Guest erisaman Posted June 24, 2003 Share Posted June 24, 2003 A deferred compensation plan is terminating due to acquisition of company. The terms of the plan call for distribution upon change of control. Are there options available, such as annuities, that would be better than cash and help these executives avoid an enourmous tax hit in one tax year? Link to comment Share on other sites More sharing options...
mbozek Posted June 24, 2003 Share Posted June 24, 2003 The purchase of an annuity contract to be owned by the employee is a transfer of property subject to taxation under IRC 83. The taxation of a lump sum is the downside of nqdc- there is no tax free rollover. The only option would be a SERP swap where the ee would forfeit the right to the nqdc in return for annual employer payments to a split $ life policy issued to the er but I dont think the ee wants to risk the ls payment for the promise of an acquiror to make payments in the futre in this economic climate. mjb Link to comment Share on other sites More sharing options...
Guest erisaman Posted June 24, 2003 Share Posted June 24, 2003 Could the company buy an annuity, name the trust as beneficiary rather than the participant, and solve the problem? The participant would have no ownership, and the benefit would stay tax deferred and unfunded until paid in the future via annuity payments. Annuity payments would be made to the trust, the trust would then pay the participant. Link to comment Share on other sites More sharing options...
david rigby Posted June 24, 2003 Share Posted June 24, 2003 No expert I, but that sounds like either a continuation/new SERP, or it does not meet the definition of "distribution". I wonder what the plan document requires. I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice. Link to comment Share on other sites More sharing options...
Guest erisaman Posted June 24, 2003 Share Posted June 24, 2003 There would be no distribution here if the participant forfeited their right to the distribution and the company used the present value of the benefit to buy the annuity stream, right? Since this isn't really a SERP, can we call it a benefit swap? Can the purchase be for an annuity, rather than a life insurance policy as suggested earlier? Link to comment Share on other sites More sharing options...
mbozek Posted June 24, 2003 Share Posted June 24, 2003 A trust could own an immediate annuity contract that would pay periodic benefits but who would be the trustee? A financial instituion would want 10K + a year to act as trustee. Second, the ownership of the annuity by the trust in which the employee has a nonforefitable interest would be regarded as a taxable event to the employee under IRC 83 equal to the fmv of the annuity if the assets of the trust are not subject to the claims of the employer's creditors. See definition of property under reg 1.83-3(e) & IRC 402(b)(1). mjb Link to comment Share on other sites More sharing options...
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