SERP for Deceased Participant

[KimberlyC 0]

A client (an LLC) was entering into discussions to provide a SERP to a top executive. The SERP would provide nonelective deferred compensation (no election by executive or deferred compensation agreement) payable in fixed installments over 5 years (at termination of employment, disability, death, etc.) with death benefits paid in the same form and at the same time for the surviving spouse.  Sadly, the executive died before the SERP was executed. The client wants to complete and execute the SERP and provide the death benefits to the surviving spouse. I think this is possible (I have put in non-elective SERPs with effective dates retroactive to the first day of the executive's tax year), but have never come across this issue before. I am a bit concerned that Reg. Section 1.409A-1(b) defines a deferral of compensation plan as a plan where the service provider has a legally binding right during a taxable year to compensation that is payable to or on behalf of the service provider in a subsequent taxable year. Technically,  the service provider didn't have a legally binding right to the SERP before death, and is no longer a service provider when the SERP is executed.  Any thoughts and comments are welcome!!!

[jpod 231]

409A is not an issue here.

[Luke Bailey 106]

KimberlyC, just out of curiosity, why are you doing it this way? There was apparently nothing legally binding before the executive died. The company can just establish a death benefit only plan for the surviving spouse. The tax consequences should be the same as under what you are describing, but with a post-mortem DBO plan you would not need to rely on substance over form to get you out of 409A, although I agree with jpod that what you propose does not seem to implicate 409A.

BTW, pay as much as you can in year following year of death to avoid FICA under 3121(a)(14).