XTitan

If the participant wasn't yet 64, there would have been no problem. The later of 65 and separation could have been changed to later of 70 (or later) and separation while complying with the subsequent deferral rules. Being within 1 year of 65, there is no ability to delay that portion of the later of election. You are left with effectively a separation only election. Then §1.409A-2(b)(9), Example 23 seems to apply: Subsequent deferral election rule – change in time of payment from payment at separation from service to payment at later of separation from service or specified age. Employee W participates in a nonqualified deferred compensation plan that provides for a lump sum payment at separation from service. Employee W wishes to make the payment payable upon the later of separation from service or a predetermined age. Provided that Employee W makes such election on or before the date 1 year before a separation from service, Employee W may elect to receive a lump sum payment upon the later of the date 5 years following a separation from service or at a specified age.

By deleting the separation portion of the election, there would be a violation of the anti-acceleration provisions as applied to multiple payment events as described in 1.409A-3(j)(2): (2) Application to multiple payment events. Generally, the addition of a permissible payment event, the deletion of a permissible payment event, or the substitution of one permissible payment event for another permissible payment event, results in an acceleration of a payment if the addition, deletion, or substitution could result in the payment being made at an earlier date than such payment would have been made absent such addition, deletion, or substitution.

I read the regs as plan aggregation rules apply at plan inception. Any way you look at it, uncovering 409A issues today that happened pre-distribution is a nightmare whether it's one plan or multiple-yet-aggregated plans.

How are you treating for FICA? All the plans I've seen treat cash balance plans as account balance plans, so I'd aggreggate under either elective or non-elective account balance plans, where applicable.

Let's see. The arrangement pre-dates 409A if it's deferred comp and pre-dates the final split-dollar regs if it's split-dollar, so general tax principles and/or Notice 2002-8 applies. I suppose the answer depends primarily on whether the deductions from the bonus were on a pre-tax basis or an after-tax basis. If they were deducted on a pre-tax basis, the executive never recognized in income the current value of the life insurance protection, so the argument is that the death benefit is taxable to the beneficiary and generates a deduction to the company. If the premiums were deducted from the bonus on an after-tax basis and covered the value of the life insurance protection each year (or arguably at least in the year of death), then the death benefit would be income-tax free to the beneficiary with no corresponding deduction to the company. If there are no written documents, maybe the paystubs would shed some light.

I'm assuming this is a distribution from a nonqualified plan. Disability is one of the 6 permissible distribution events under 409A. Why would the company report a distribution under code Z? Is disability not a distribution option under the plan? Heck, you say that he termed due to disability. Maybe the distribution was payable under the separation election? I recall having arguments with a certain large payroll provider when 409A was enacted who used box 12 Code Z to report all distributions from 409A, regardless of whether they were distributions that violated 409A or not. Maybe it's a payroll issue?

I had a similar situation come up recently where the carrier 1099'd the insureds as well. In this case, the VEBA trustee went back to the carrier and asked them to report the 1099 to them as owner and beneficiary of the policies. The understanding is that the gain is taxable to the VEBA trust as UBTI.

Maybe next year (unless you beat me to it)

Wrote this one a long time ago - to the tune of Jenny (867-5309) by Tommy Tutone There a number that we're all learning It's supposed to keep the world turning Measure round a circle; then across You divide the numbers, and I'm at a loss Chorus Why is it the same number? Do you think it's divine? I memorized this number 3point14159 3point14159 3point14159 3point14159 Tell me Euler why was it better As a shorthand to use a Greek letter? Were you tired of writing the constant by A ratio of circumference to twice radii Chorus I got it, I got it And I know the reason why I got it, I got it It's as easy, as easy as pi Chorus Let me tell you what I have found 3point14159 Cornbread are square; pie are round 3point14159 3point14159 3point14159 fade out

Payment from a terminating split-dollar plan doesn't seem to be any different than a payment from a nonqualified deferred compensation plan, which generally leads to W-2 reporting. While Notice 2007-34 is the authority on the interaction of 409A with split-dollar, it does not cover W-2/1099 reporting.

Reporting is not the same. From the 2009 1009 General Instructions Distributions from a nonqualified deferred compensation (NQDC) plan to an estate or beneficiary of a deceased plan participant are no longer reported on Form 1099-R. They should be reported on Form 1099-MISC.

http://www.dol.gov/ebsa/faqs/faq_DFVC.html How does an administrator of a Top-Hat Plan participate in the DFVCP? The plan administrator must prepare the statement described in regulation section 29 CFR §2520.104-23 and file it at the following address: U.S. Department of Labor Employee Benefits Security Administration Top Hat Plan Exemption 200 Constitution Avenue, NW, N-1513 Washington, DC 20210 Note: If a plan sponsor has more than one top hat plan that is participating in the DVFC program at the same time, a single statement covering all of the plans may be filed consistent with the general requirements for top hat plan filings under 29 CFR § 2520.104-23. The plan administrator must also submit to the DFVC program, either on paper through the mail or electronically. If filing on paper, complete the most current Form 5500 Annual Return/Report (without schedules or attachments), items 1a–1b, 2a–2c, 3a–3c, and use plan number 888 for all the top hat plans covered by the top hat plan filing under 29 CFR § 2520.104-23. The paper copy of the form must be signed and dated, and be accompanied by a check for $750 made payable to the U.S. Department of Labor, and sent to: By Mail: DFVCP P.O. Box 70933 Charlotte, NC 28272-0933 By Private Delivery Service: DFVC DOL Wachovia QLP Lockbox D1113-022 Lockbox #70933 1525 West WT Harris Boulevard Charlotte, NC 28262 If submitting to the DFVCP electronically, follow the calculator instructions for online payment at www.efast.dol.gov. The applicable $750 penalty amount is for each DFVCP submission, without regard to the number of plans maintained by the same plan sponsor for which the notices and statements are being filed or the number of participants covered by the plan or plans.

My take on it is that both the employer and employee have to submit amended tax forms for 2008 in order to have the additional employee taxes limited to 20%. The Section IX attachment does go on the 2010 tax forms. That means I refile my 2008 1040 today to pay the taxes deemed due back in 2008 but I don't explain it until I file 2010 taxes in 2011. Though not required, is there any reason not to file the Section IX attachment with 2008 amended forms as well? Sure seems like it would eliminate some pretty basic questions.

A toaster is better than being toasted, which is usually the case when these things come up.

Check the W-2 instructions, Box 1: Box 1—Wages, tips, other compensation. Show the total taxable wages, tips, and other compensation (before any payroll deductions) that you paid to your employee during the year. However, do not include elective deferrals (such as employee contributions to a section 401(k) or 403(b) plan) except section 501©(18) contributions. Include the following: ... 14. Distributions to an employee or former employee from an NQDC plan (including a rabbi trust) or a nongovernmental section 457(b) plan

Hopeless indeed.

I would interpret "amount involved" as the amount to report as income if there were a full 409A violation without relief granted under Notice 2010-06, as outlined in the proposed regs for income inclusion, and is based on the specific requirements outlined in the section that affords the relief. The Notice 2010-06 reporting amounts are the "amount involved", the amount includible in income, and the percentage of the "amount involved" to include. For example, if as part of the correction procedure, the amount to include is 50% of amounts deferred, then the "amount involved" would seem to be 100% of the amounts deferred. Paying 20% of 50% is still better than paying 20% of 100% + premium interest taxes.

Does this help? §1.409A-1©(3) Establishment of plan--(i) In general. A plan does not satisfy the requirements of section 409A and this section and §§1.409A-2 through 1.409A-3 and §§1.409A-5 through 1.409A-6, unless the plan is established and maintained by a service recipient in accordance with the requirements of this section, §§1.409A-2 through 1.409A-3 and §§1.409A-5 through 1.409A-6. For purposes of this paragraph ©(3), a plan is established on the latest of the date on which it is adopted, the date on which it is effective, and the date on which the material terms of the plan are set forth in writing. The material terms of the plan may be set forth in writing in one or more documents. For purposes of this paragraph ©(3)(i), a plan will be deemed to be set forth in writing if it is set forth in any other form that is approved by the Commissioner. The material terms of the plan include the amount (or the method or formula for determining the amount) of deferred compensation to be provided under the plan and the time and form of payment. Notwithstanding the foregoing, a plan will be deemed to be established as of the date the participant obtains a legally binding right to a deferral of compensation, provided that the plan is otherwise established under the rules of this paragraph ©(3)(i) by the end of the taxable year of the service provider in which the legally binding right arises, or with respect to an amount not payable in the year immediately following the taxable year of the service provider in which the legally binding right arises (the subsequent year), the 15th day of the third month of the subsequent year.

I always thought that the easy definition of top paid group meant anyone who had a higher salary than me.

It's not so much that 60 days is too long, it's that the CEO would retain the right to determine the year of payment via exercise. Limiting the ability to exercise to the calendar following the triggering event would be a great idea. §1.409A-3(b) ...A plan may also provide that a payment, including a payment that is part of a schedule, is to be made during a designated period objectively determinable and nondiscretionary at the time the payment event occurs, but only if the designated period both begins and ends within one taxable year of the service provider or the designated period is not more than 90 days and the service provider does not have a right to designate the taxable year of the payment

W-2 Instructions (Page 1 under Reminders) Reporting for nonqualified deferred compensation plans. You are not required to complete box 12 with code Y (deferrals under nonqualified plans subject to section 409A). As per Notice 2008-113, Box 12 Code Y reporting won't be required until the income inclusion regs are finalized.

I think you're confusing reporting of deferrals (Box 12 Code Y, which is not yet required) with reporting income due to violating 409A. If it's a distribution from an NQDC plan that isn't a 409A violation, it's box 1 reporting as usual. If there is income recognition due to a violation of 409A, it's box 1 for income and box 12 code Z for the reporting of the 409A violation amount. Hope this clarifies.

According to the 2010 W-2 Instructions: Income included under section 409A from an NQDC plan will be reported in box 1, and in box 12 using code Z.

Sounds logical (couldn't resist). If the plan is amended to include this discetionary cashout (include plans it would be aggregated with), the regs seem to permit it. Notice 2008-115 gives some guidance for calculating the amount deferred for non-account balance plans.

I think this example is on point. Example 7. On November 1, 2008, Employer T grants Employee G a legally binding right to the payment of a life annuity with the first annuity payment on November 1, 2013, provided that Employee G continues performing services for Employer T continuously through November 1, 2013. Because the life annuity is treated as a single payment, and because all payments of the life annuity may not occur during the applicable 2 ½ month period, the plan provides for a deferred payment and none of the amounts payable under the annuity will qualify as a short-term deferral, so that section 409A applies to all amounts that are payable under the plan.