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401 Chaos

409A and TARP Intersection (Collision)

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Interested in any thoughts or experience with the following situation.

Bank has a SERP subject to 409A that provides for accelerated vesting and lump sum payout of benefits upon a single-trigger change in control. Bank is considering a transaction which will result in a change in control. The Bank is a TARP recipient. The transaction would actually result in repayment of TARP simultaneous with or shortly following the CIC transaction. Under the Interim Final Rule (IFR), it appears the single-trigger CIC benefits would be regarded as prohibited parachute payments and thus may not be paid. This appears to be the interpretation even if the TARP amounts were repaid simultaneous with the CIC.

Under Section 30.14 of the IFR, the SERP benefits apparently would be ok if they they were double-trigger benefits (i.e., payout upon a 409A separation from service following a CIC). (CIC deal involves acquisition by non-TARP entity so the 30.14 exception would seem to allow double-trigger benefits.) All parties involved here would like to amend the existing SERP provisions at this time to provide for double-trigger benefits as all of the SERP participants are to continue employment.

The catch (22) here though appears to be that there is no way to amend the single trigger payout to a double trigger at this time under Code Section 409A. (The deal will happen within the next few months so there is no way to make a subsequent deferral election 12 months in advance of the CIC date--assuming that would work if timing permitted.)

As a result, seems the TARP rules prohibit receipt of the accelerated vesting and payout of the CIC benefit in accordance with the existing 409A-compliant single-trigger distribution provision while the 409A rules prohibit amending the payment date to track the TARP rule exception.

Has anyone dealt with this before or see some way around we are missing? Thanks.

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Too complicated for me to think through at the moment, but does IRS Notice 2009-92 help?

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Thanks. My understanding is that 2009-92 only applies if the compensation at issue is subject to an Advisory Opinion by the Special Master--e.g., cases of those receiving special assistance under TARP that have their compensation provisions specifically amended or adjusted by the Special Master and so need assurance that the amendments or changes won't cause problems with 409A. I don't know all the particulars of that but it does not appear that the Special Master is likely to grant any particular Advisory Opinion to permit paying out SERP amounts in our case.

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Guest ericdeko
Thanks. My understanding is that 2009-92 only applies if the compensation at issue is subject to an Advisory Opinion by the Special Master--e.g., cases of those receiving special assistance under TARP that have their compensation provisions specifically amended or adjusted by the Special Master and so need assurance that the amendments or changes won't cause problems with 409A. I don't know all the particulars of that but it does not appear that the Special Master is likely to grant any particular Advisory Opinion to permit paying out SERP amounts in our case.

I'm new here, just browsing for some good and informative stuff and i found this thread interesting i like the discussion.....Thanks for posting something like this.

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