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kmhaab

Can a SERP be rolled over into Phantom Stock?

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I know bizarre question....

A company is in the final stages of restating and merging a traditional NQDC plan and a SERP into a Phantom Stock Plan and is intending to roll the benefits accrued under the NQDC and SERP into the Phantom Stock Plan. I'm coming in at the end to review documents...

The SERP promises to pay a certain benefit amount to participants upon certain future events (i.e. normal retirement, disability). Company wants to effectively "rollover" benefits accrued to date under the SERP into the Phantom Stock Plan, keeping the same distribution terms for 409A compliance. Going forward, no new benefits would be accrued under the terms of the SERP. Participants would be eligible to receive phantom stock going forward. The "rollover" balance from the SERP could grow based on the phantom stock value (but not be reduced). There is no acceleration of the timing of payments of benefits accrued to date. 

My questions are:

1. Is this really a termination of the SERP, and if so does that preclude the adoption of the Phantom Stock Plan (even though there is no acceleration of payment under the SERP)?

2. If not, are the new benefits yet to be accrued under the Phantom Stock Plan bound by the prior SERP distribution provisions? I initially thought not, but am now wondering if the Phantom Stock granted in the future would be considered a replacement for the full normal retirement benefits previously promised under the SERP? 

Any and all thoughts would be appreciated. Thanks!

 

 

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I got a bit tired reading your facts but it sounds like you are simply amending the two plans to change the accrual formulae prospectively and not changing the timing of distributions, and you are not "terminating" anything for purposes of 409A or otherwise.  As long as the employer's contractual obligations under the existing plans permit this I don't see any issues (other than perhaps some difficulty explaining to the participants what you're doing). 

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jpod - thank you for your input. 

Here's another question - Instead of amending and merging the plans as I described above, can the employer terminate the SERP and adopt a Phantom Stock Plan if payments under the SERP are not accelerated due to the termination?  The SERP provides that upon termination a participant is entitled to an accrued benefit amount (equal to accruals for accounting purposes) and that accrued amount will be paid according to the original provisions governing the form and timing of distributions.  

My interpretation of the rules prohibiting the adoption of a new NQDC plan within 36 months of the termination of a prior NQDC plan is that such rules apply when there is an acceleration of payment due to the plan termination.  As such, I don't believe an employer is prohibited from adopting a new NQDC plan if there is no acceleration of payment. I'm curious if you agree?

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The 3 year rule on voluntary terminations relate to termination and liquidation of the plan, which is not happening here.  In any case, it would also prohibit implementing a new plan that would be aggregated with the old plan, which is again not the case here.

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The 409A substitution rules just say that any benefit in exchange for forfeiting an existing benefit is deemed to be a payment of the existing benefit.  Since you are retaining the accrued benefit and the payment terms, there shouldn't be an issue. 

I would be careful that there is no appearance of reducing the existing accrued benefit under the "old" plan in exchange for a richer benefit in the future, however, as that could be seen as a de facto deferral.

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