XTitan

This is why you should never drink and derive.

Please stop before this spirals out of control.

I read the conclusion from the ABA Q&A that it is possible to have different forms of payment depending on whether the termination was voluntary or involuntary. The question may not apply, the reasoning sure sounds like it.

This is from the Q&A from the May 2009 ABA JCEB meeting which, while on another topic, seems to indicate you can differentiate between voluntary and involuntary: A nonqualified deferred compensation plan subject to Section 409A provides for a distribution at age 65 or, if earlier, upon an involuntary separation from service. If the separation is voluntary, payment is made at age 65 (i.e., on the original fixed payment date). Does such a provision (accelerating payment upon only a subset of an otherwise permissible payment event) comply with Section 409A? Proposed Response: Yes. Section 409A permits distributions to be made upon the earlier of one or more permissible payment events, such as the first to occur of a date certain (e.g., age 65) or a separation from service. When a separation from service is a payment event, there is no requirement that every possible separation from service is a payment event. Because payment could be made before age 65 upon any separation from service (whether voluntary or involuntary), it likewise should be permissible to permit an earlier distribution upon a subset of the permissible payment event (e.g., upon an involuntary but not voluntary separation from service). IRS Response: The Service representative agrees with the proposed answer as long as whether there has been an involuntary separation from service is objectively determinable and nondiscretionary.

I thought this was a message board to discuss COBRA, not Tiger. Different animal from a different gene pool. That's one more.

For completeness, the comp limit is indexed and is currently 160,000.

It's a little bit more than that. See IRC 409A and the 397 pages of regulations under that.

As long as the plan is amended by the end of the year the increased contribution is made, you should be able to do it, provided there are no games being played. The applicable regs: §1.409A-1©(3)(vi) Plan amendments. In the case of an amendment that increases the amount deferred under a nonqualified deferred compensation plan, the plan is not considered established with respect to the additional amount deferred until the plan, as amended, is established in accordance with paragraph ©(3)(i) of this section. §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'm a little out of my league when it comes to 401(k)'s but I'll give it a shot. What does the plan say is the definition of comp? If the definition of compensation is 414(s) or 415©(3), then 415©(3)(D) says (D) Certain deferrals included The term “participant’s compensation” shall include— (i) any elective deferral (as defined in section 402 (g)(3)), and (ii) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, 132 (f)(4), or 457. Since NQDC deferrals are not included in income under 409A/451, and not included due to 125, 132, or 457 (or 402(e)(3), 402(h) or 403(b)), generally NQDC deferrals are excluded from the definition of comp.

Yuck. No good faith compliance argument? Maybe argue the short-term deferral rule in Q/A 4© applies since the amounts were paid out within 2.5 months after the service providers taxable year after the lapse of the substantial risk of forfeiture? I just hope there was no collusion to pay in January instead of December...

Which section of the regs are you looking at? The limited cashout provision [§1.409A-3(j)(4)(v)] provides the company discretion to cash out all aggregated plans for any individual, provided the amount is below the 402(g) limit (and the plans are all amended to provide this discretion). The company would be able to cash the participant out at any time, regardless of whether there was a triggering event. The section where the tail of the distribution can be lumped out if the pv is below a predetermined amount [§1.409A-2(b)(2)(iii)] isn't tied to 402(g) limits. However, if you argue that the predetermined amount can be the 402(g) limit, you value the pv of the remaining benefits as of the date of termination and find it below the predetermined amount, then mandating payment within 90 days sounds reasonable. See Notice 2007-78 for more guidance on predetermined cashouts.

My guess is that the additional payment method is a change to the time and form of payment subject to the 1 year/5 year rule.

On the other hand, I had a client's counsel say that V.D did apply to an underpayment of distribution. Go figure.

Traditional IRA and Roth IRA?

Would you or someone else kindly explain what such accounting attributes might be? I have seen some COLI FAS #87 exhibits for example, and have not seen any differences that appeared sustantive beyond what looked like smoke and mirrors. I wouldn't call it smoke and mirrors; I'd call it GAAP, which is sometimes saying the same thing. Depending on the asset and the accounting treatment adopted, you might/might not accrue deferred tax liabilities, you might/might not mark-to-market, you might/might not have fair market valuations, etc.

Someone did send me 6.02 x 10^23 tubs of guacaMOLE. I figured it was Avocado's number.

From an economic stand point, you should consider the accounting attributes as well as they tend to be different between life insurance and taxable assets.

Ah. Skepticism fueled by economic concerns not tax law. That's legit. When it comes to an assumed rate of return on an insurance proposal, the only thing you can be sure of is that it's wrong, but you won't know by how much for another 40 years. I suppose that's true for any asset. If you want to see the mechanics of the insurance proposal at a different rate, the broker should be able to provide.

The reasons for banks owning life insurance are similar to the reasons for corporations or trusts owning life insurance for informally funding NQ plans. The banking regulators issued OCC 2004-56 to address many of the issues regarding the permissibility of banks owning life insurance. Why the skepticism on tax-deferred cash value growth?

I think Tom is right too, but that material didn't touch on the wage base calculation. The national average wage index isn't based on any inflation factor; it's based on the amount of wages actually reported to the SSA. Since the reported 2008 national average wage index increased over 2007, we should have seen the wage base increase up to $109,200 if it wasn't for the fact that 230(a) below says increases to the wage base occur only if the are COLA increases. 230(b) notes that the wage base can't go down. We'll just have to wait until next October. For reference: Sec. 230. [42 U.S.C. 430] (a) Whenever the Commissioner of Social Security pursuant to section 215(i) increases benefits effective with the December following a cost-of-living computation quarter, the Commissioner shall also determine and publish in the Federal Register on or before November 1 of the calendar year in which such quarter occurs the contribution and benefit base determined under subsection (b) or © which shall be effective with respect to remuneration paid after the calendar year in which such quarter occurs and taxable years beginning after such year. (b) The amount of such contribution and benefit base shall (subject to subsection ©) be the amount of the contribution and benefit base in effect in the year in which the determination is made or, if larger, the product of— (1) $60,600, and (2) the ratio of (A) the national average wage index (as defined in section 209(k)(1)) for the calendar year before the calendar year in which the determination under subsection (a) is made to (B) the national average wage index (as so defined) for 1992, with such product, if not a multiple of $300, being rounded to the next higher multiple of $300 where such product is a multiple of $150 but not of $300 and to the nearest multiple of $300 in any other case.

If I'm reading section 230 of the Social Security Act correctly, it would reflect two years of increase. However, if the 2009 average wage index drops below the 2007 average wage index, the wage base would remain flat; it can't decrease.

It happens. For example, if you moved and they didn't process a change of address, they likely would have escheated the balance to the state of record.

Anybody want to guess on what the unrounded limits are?

The Social Security wage base is remaining fixed this year at $106,800. According to the SSA, The formula for determining the OASDI contribution and benefit base is set by law. The formula is applicable only if a cost-of-living increase becomes effective for December of the year in which a determination of the base would ordinarily be made. Because there is no cost-of-living increase for December 2009, the formula is not applicable. Thus the base for 2010 is the same as the 2009 base, $106,800. If the SSA can stretch to reach this conclusion, we'll have to see if Treasury can stretch as well.

Since V.D makes no mention of underpayments, I think that you fall to VI.C or VII.D depending on the size of the missed payment.