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457(f) SERP


jpod

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Tax-exempt employer has a defined benefit-type SERP for an employee. Naturally, it is subject to Section 457(f). As of the date of termination of employment, the present value of all of the accruals under the SERP have been included in income under 457(f). What remains is a stream of payments for life which would be taxed in accordance with the Section 72 rules. If employer buys an annuity contract that will provide those payments and distributes the annuity contract to the employee, will that be an impermissible acceleration under Section 409A? Assume the cost of the annuity contract is greater than the amounts previously taxed. Alternatively, assume that the employee agrees to take an annuity contract that is purchased for the exact amount already taxed. To the extent that the period annuity payments under the contract are less than the amount earned under the SERP, the employer would pay the employee the difference each month out of its general assets.

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