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Guest mlr2

Amount of Payment Tied to Sale Price of Company

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Guest mlr2

As part of the definition of specified time or fixed schedule, 1.409A-3(i)(1)(i) provides that "an amount is not objectively determinable if the amount of the payment is based all or in part upon the occurrence of an event, including the consummation of a transaction by, or a payment of an amount to, a service receipient."

I interpret this to mean that if a plan provides that an employee will receive some percentage of the net sales proceeds from a sale of the company, the plan would violate the above language if it provided for the payout to be made in installments, as opposed to a lump sum, because the amount would not be objectively determinable.

Am I missing something?

Thanks in advance for any insights.

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Guest Subsequent Deferral

I believe that the more specific the payment event, i.e., payment upon net sales, not to exceed X, or payment of 5% of net sales with a floor of X within 2 years after the close of the transaction would be sufficient. I believe the rule is trying to avoid general events, e.g., payment upon sale of company -- instead of a more specific payment event at a specified time.

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