Can Affiliated Employer (not in same Controlled Group) Share a NQDC Plan?

[ERISA-Bubs]

We have a group of employers that are somewhat related, but definitely not considered the same "Service Recipient" under the 409A Regs.  But, they all have identical Nonqualified Plans.  We would like to combine the plans into a single plan.  We would take pains under the Plan to make sure the definition of "Employer" was a reference to the individual Employer the Service Provider works for, including that the Employer is responsible for benefit payments out of their own general funds, and the Employer's creditors have access to those funds in the event of bankruptcy/insolvency, etc.  Does this work?

Some concerns I have are:

• Say one Employer goes bankrupt and their creditors wipe them out so they can't pay benefits under the Plan -- is there any risk the other Employers are on the hook for benefit payments for the bankrupt employer?
• Say one Employer goes bankrupt, would their creditors have any claim over accrued benefits owed to the Service Providers of other Employers under the Plan?
• Are there any other rules that would prevent a combined Plan just as a matter of statute or regulation?

Thanks in advance!

[Peter Gulia]

If one makes documents using word-processing software:

What efficiencies do you gain by putting distinct employers’ obligations under one document?

Might a drafter’s added sentences to make clear that each employer/service recipient has obligations only for the deferred compensation of that employer’s service providers be more work than using a document that refers to only one obligor?

Might a drafter’s added sentences to make clear that a creditor of one employer has no right regarding the assets of another employer be more work than using a document that refers to only one employer?

If the plans’ provisions truly are identical (but for the identity of the obligor), isn’t making separate documents little more than editing the name of each employer?

Or is there some other business reason why one or more of your clients might like putting the several employers’ obligations under one document?

[CuseFan]

What are you trying to accomplish? Did you want one document instead of X or are you/they looking to pool assets that are set aside into a master rabbi trust for lack of a better term, and then put on one platform to administer as one (multiple employer) plan? Assets must remain owned by the sponsoring employer (or rabbi trust) subject to the claims of creditors. If you combine, how do you title assets separately by employer, maybe through participating employee of an employer? But would a custodian be able to handle? I have never seen a master rabbi trust, which might be the solution, but that doesn't mean those can't exist. If participating employers are to gain cost savings and/or other efficiencies, then they can share the cost of getting legal opinion and/or document preparation for such.

[ERISA-Bubs]

6 hours ago, Peter Gulia said:

If one makes documents using word-processing software:

What efficiencies do you gain by putting distinct employers’ obligations under one document?

Might a drafter’s added sentences to make clear that each employer/service recipient has obligations only for the deferred compensation of that employer’s service providers be more work than using a document that refers to only one obligor?

Might a drafter’s added sentences to make clear that a creditor of one employer has no right regarding the assets of another employer be more work than using a document that refers to only one employer?

If the plans’ provisions truly are identical (but for the identity of the obligor), isn’t making separate documents little more than editing the name of each employer?

Or is there some other business reason why one or more of your clients might like putting the several employers’ obligations under one document?

This is client driven.  They want a single plan document so they can amend one plan when needed rather than amending several plans every time.  It might be initially more work to implement, but for future purposes, updating the plan will be much easier.

[Peter Gulia]

If your client has made that considered choice, you'll want to read carefully (and consider the perspective of a challenger who seeks to invent an ambiguity) to catch everything and negate all the unwelcome interpretations.

I've done documents of the kind you describe. It can work if you sweat the details.

[Luke Bailey]

Agree with Peter, but it will be essentially two plans living sort of in one plan document.

On 6/3/2022 at 8:41 AM, ERISA-Bubs said:

Say one Employer goes bankrupt and their creditors wipe them out so they can't pay benefits under the Plan -- is there any risk the other Employers are on the hook for benefit payments for the bankrupt employer?

Probably not, but talk to a bankruptcy lawyer. It's going to be the same rule as owing salary or rent, or whatever. Without some sort of fraud or collusion for the stronger financially to prop up the weaker or make it seem more creditworthy, or employees providing services to both companies and funny business with where the NQDC for those services is placed, their debts (which is all the NQDC is) should be separate.

 

On 6/3/2022 at 8:41 AM, ERISA-Bubs said:

Say one Employer goes bankrupt, would their creditors have any claim over accrued benefits owed to the Service Providers of other Employers under the Plan?

This seems like the same question really as 1 above. The creditors are not going to want benefits, they will want assets. I suppose if one of the individuals owed benefits under the nonbankrupt plan had a hand in some alleged financial chicanery that harmed the creditors of the other the creditors could go after that individual's benefits, but then you are into a very messy and creditor unfriendly area of trying to garnish someone's NQDC. Probably impractical unless the individual is close to a payment event.

On 6/3/2022 at 8:41 AM, ERISA-Bubs said:

Are there any other rules that would prevent a combined Plan just as a matter of statute or regulation?

In terms of the IRC, the companies must pay for their own benefits, of course, otherwise they are making capital contributions to the other company. Assuming the plan constitutes a "retirement" plan under ERISA (which it probably would, but might not if it had in-service payment dates), ERISA will preempt all state laws, but says nothing really about the substantive rules for NQDC.-

[Linda Wilkins]

On 6/3/2022 at 10:02 AM, Peter Gulia said:

 

If the plans’ provisions truly are identical (but for the identity of the obligor), isn’t making separate documents little more than editing the name

Sometimes legal counsel drafting the client's plan must educate the client  whether a client's idea of "time saving" approaches really makes sense.  Here I don't think it does.