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TaxLawyer1978

Bonus Payment - can Board have option to allow payment even if participant not entitled to it?

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Can a bonus plan can provide for both

(a) payment of X amount if person employed on Y date, and otherwise if you're not employed on Y date, you don't get paid regardless of the reason for the earlier termination of employment (e.g. no payment even if termination prior to Y date was because of death, disability, etc.) AND

(b) Board "may elect, in its sole discretion" (presumably as of date Y) to pay one or more participants who are not employees on Y date such that the participant, even though not employed on date Y, still gets the payment.

I believe the answer is NO.  But confirming.  This is something that the client has drafted and sent for review.

Thanks

 

 

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The Board can do whatever the heck it wishes to do.  If you are asking whether the Board doing this can create a 409A problem for the employee, your facts aren't perfectly clear but my guess is that it will not.

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thanks.  the facts are that the employee gets the payment only if employeed on date Y, but the board wants the option to pay them if for example they're no longer employed as of date Y because of disability.  but the decision would not be made by the Board until date Y.  And yes, the question is whether this creates any 409A issues?  I believe the answer is NO, because I don't see how it would create an issue, but wanted to make sure.  Thanks

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Assuming 409A applies, and with bonuses payable upon a specific date you may be living in short-term deferral land, the substitution rules wouldn't apply, so I can't see any issues either.

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Change your "presumably as of date Y" to "as of date Y," and you're not changing the time of payment, just the executive's vesting. That should be OK under 409A.

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We typically have a matrix of plan events--such as disability or death or involuntary term without cause if they apply in our AI plan documents. This could all also be solved by a provision covering that and not leaving it to the Board's discretion. Just a thought

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