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Anti-Acceleration Rule


jpod

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Employer maintains an account balance deferred compensation plan covering several employees that is subject to 409A. Plan cannot be amended by the employer in a fashion that would have an adverse effect on any participant's accrued benefits.

Employer would like to make a limited-time offer to some participating employees (in writing, although I don't think that matters) to cash them out of the plan early and terminate their participation in the plan. Only employees who accept this offer will be cashed out and cease to participate.

Questions:

1. Will the mere offer by the employer, prior to acceptance of the offer by any employee, violate the anti-acceleration rule? (Remember, the offer can't be considered a plan amendment because the employer can't amend the plan to cash-out people.)

2. Assuming the answer to #1 is "yes," what if the offer is made only to those employees whose cash-out amount will be $16,500 or less?

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I should add that the employer recognizes that 409A will be violated (at least) in the case of anyone who accepts the offer and is cashed-out. As part of the offer the employer will agree to gross the employee up for the extra taxes under 409A for anyone whose cash-out is greater than $16,500.

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The limited cashout provision says in part "a plan may require or provide a service recipient discretion to require (or be amended to require or to provide a service recipient discretion to require)..."

If the plan doesn't provide a limited cashout provision now, sure looks like the plan would need to be amended to provide, which you say they can't. So I think the answer is there are anti-acceleration issues for both 1 or 2.

I also think the offer to allow a participant to decide whether to receive their balance today or continue to let it ride raises some constructive receipt issues whether they take it or not.

 - There are two types of people in the world: those who can extrapolate from incomplete data sets...

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XTitan: There's more to the story than I have divulged that would avoid constructive receipt. I know there will be a 409A violation if money is actually paid. What I want to know is if the mere offering of this opportunity is a 409A violation, so as to create a 409A problem for even those employees who reject the offer. Since I posted I think I found the answer, so never mind.

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