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Floridaattorney

another 409A question

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This may be a dumb question but I haven't seen a definitive answer out there...

Can a 409A plan provide for different payouts upon different events. for example, you get 100% of amounts that we set aside if you leave because of disablity or age 65 retirement, 90 % if there is a change in control, 80% if you we fire you for no good reason and 20% if we fire you because you were a rotten employee?

Would the answer be different if the agreement just said you get 100 k for disability or retirement, 90k for change of control, 80k for term w/o cause and 20k for term with cause?

Also, could you have different payout schedules for each of these occurrences (eg lump sum for disability, 5 year installment for disablity, 10 year for term w/o cause and 15 year for term w/cause)?

Thanks.

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I've not run your first two questions through the 409A regulations, but I can think of nothing in them that prohibits paying different amounts upon different events or types of separation (and I've drafted 409A agreements that do that). The definitions of the different types of separation need to differentiate them in a manner that satisfies the following requirements:

1. From 1.409A-1©(3)(i): "The material terms of the plan include the amount (or the method or formula for determining the amount) of deferred compensation to be provided under the plan and the time and form of payment."

2. From 1.409A-3(i)(1)(i) (if the payment is subject to these rules): "Amounts are payable at a specified time or pursuant to a fixed schedule if objectively determinable amounts are payable at a date or dates that are nondiscretionary and objectively determinable at the time the amount is deferred. An amount is objectively determinable for this purpose if the amount is specifically identified or if the amount may be determined at the time payment is due pursuant to an objective, nondiscretionary formula specified at the time the amount is deferred (for example, 50 percent of a specified account balance)."

As to your third question, the answer is in 1.409A-3©, Designation of alternative specified dates or payment schedules based upon date of permissible event.

The drafting might be complex, for example if after age 65 there is a change in control or the employee is terminated for cause.

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