jpod Posted May 17, 2013 Share Posted May 17, 2013 Employer has a phantom stock program for employees subject to 409A. Payout is upon a 409A change in control. However, upon a separation from service prior to a change in control, employer has a 90-day option to repurchase the employee's vested phantom stock units at the then fair market value and pay the repurchase price to the former employee in cash immediately. If employer does not exercise this option, former employee holds his vested phantom stock units until there is a 409A change in control (if there ever is one). Doesn't the 90-day option to repurchase violate 409A, and doesn't it violate 409A even if never exercised? Link to comment Share on other sites More sharing options...
QDROphile Posted May 17, 2013 Share Posted May 17, 2013 One way to look at the arranangement is that the compensation is subject to a substantial risk of forfeiture. That means it is not deferred compensation. The employer can accelerate the vesting at will (the employer has chosen to state a limitation on that ability) and pay at vesting. That puts a lot of pressure on the change of control as a substantial risk of forfeiture. I would not accept an unlimited time frame for the vesting event. Link to comment Share on other sites More sharing options...
jpod Posted May 17, 2013 Author Share Posted May 17, 2013 QDRO. Interesting thought. In fact the plan already exists and I am looking at it after-the-fact. With the exception of the employer's call option at separation from service, the payout is if, and only if, there is a CIC (or a dissolution of the employer), and it is an unlimited time frame with no right reserved by the employer to effect a plan termination. (Bad drafting in my opinion.) Are you saying that you think the unlimited time frame hurts the "substantial risk of forfeiture" i.e., short-term deferral argument? Link to comment Share on other sites More sharing options...
QDROphile Posted May 17, 2013 Share Posted May 17, 2013 I think one can say that there is a substantial risk that there will be no change in control in the next three years (depending on the circumstances, fo course). I think it is tougher to say that there will not be a change of control or dissolution in 20 years. A family-owned business might have that stability. An early stage tech company will not. Link to comment Share on other sites More sharing options...
401 Chaos Posted May 17, 2013 Share Posted May 17, 2013 Hadn't really thought about this but would a typical dissolution qualify as a 409A distribution event? Seems it wouldn't necessarily come within the change of control definition. Would that basically equal termination of the Plan? Link to comment Share on other sites More sharing options...
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