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Death/Disability as a 409A Substantial Risk of Forfeiture


EBECatty

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So I've always been under the impression that vesting on death or disability retains a substantial risk of forfeiture under 409A.

For example, a nonqualified plan says employee will be paid $100,000 provided they are still employed in five years. If they remain employed but there's a death, disability, involuntary termination without cause, or change in control before the end of the five-year period, they vest in the $100,000 upon the first of those events. Payment in any case is made within the short-term deferral period.

I've assumed all these conditions would result in short-term deferrals. Five years of service clearly imposes a SROF under the regulations. Involuntary termination is explicitly mentioned in the regulations as creating a SROF. Change in control is a condition related to the business or organizational goals.

But the regulations are silent on death and disability. They are not service requirements, and are not conditions directly related to the "business" or "organizational" goals of the employer. They strike me as "personal" contingencies, not business-oriented contingencies related to the purpose of the compensation.

I've found guidance under 457(f) and 83 confirming death and disability are SROFs under both sections, but the 409A definition is narrower and I don't see clear authority blessing either death or disability as a SROF.

A prior thread, with a few others unsure of any authority, is here:

http://benefitslink.com/boards/index.php/topic/41317-short-term-deferral/

Thoughts?

EDIT: After some further thought, maybe I'm looking at this particular example from the wrong angle. The SROF here is the requirement that the employee continue performing services to have any chance of payment, i.e., employee only gets paid $100,000 upon the intervening events provided he remains employed on the date the event occurs. He can't voluntarily quit in year 1, then get paid in year 3 if he happens to become disabled or there's a change in control. So in that sense the SROF remains until the end of year 5 (in which case he is paid within the short-term deferral period). Better?

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