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Replace severance benefit with incentive bonus under post-merger employment agreement


panther

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Company merged with Target and now wants to enter into new employment agreement with Target Executive.  The current employment agreement offers $100k severance benefit upon Good Reason termination due to change in employment position, which will occur.  To encourage Target Executive to stay, Company offers new employment agreement with $100k signing bonus and no severance benefit.  Would this be a "substitution" under 409A and thus an impermissible change in the time of payment?  I think not because under the current agreement he does not get the $100k unless he terminates, which he would not do if he signed the new agreement.

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Just going from memory and defer to experts out there if I'm incorrect but I thought bona fide severance arrangements were exempt from 409A.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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