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benefitsguru

409A - need to cancel deferral election

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Employee wants to cancel a 2015 deferral election (1st year in the plan and it's the only one he's in) and just pay tax and take a 20% haircut. Can it be done??? Neither the disability nor hardship exception applies in this case.

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Can it be done? Sure. However, it's not only the amounts deferred to date that would be subject to the additional income tax. The cancellation of the deferral election would also likely be deemed an acceleration of benefits for amounts not deferred.

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Good point so the haircut applies to all amounts deferred thus far in '15 + amounts that would be deferred if the election remained in place for all of 2015.

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If you are very sophisticated and appropriately cautious, you might consider the general doctrine of rescission. If you believe it applies under 409A, it might not be avaliable under the facts because the election was made in the prior year. The devil is in the details and the doctrine is fuzzy.

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