XTitan

No statutory requirement for any such language.

With an extra year on to pay out pre-2018 balances. And so it goes...

You can always structure a deferred bonus arrangement that pays out upon vesting. As long as the payments are not systematically deferred until retirement, it may not be considered a pension plan and thus not subject to ERISA. Trying to get employee deferrals into such an arrangement would be problematic (to say the least). Such an arrangement would likely survive the way the proposed 409B rules are currently drafted. Since my crystal ball is still in the shop, we don't know what the final version of 409B will look like (heck, we don't know if the final bill will even contain 409B or whether there will even be a final bill enacted), so waiting until all becomes clearer is the best course of action.

No, there would be no reason to have voluntary deferrals at all (maybe employer only contributions with a long vesting schedule). I think what would happen is the participant would take the compensation, invest it in taxable securities, and pass it onto their beneficiaries with a step-up in basis and no estate tax so that any appreciation is ultimately tax-free.

Politics aside, it's mainly because the amounts deferred, even beyond vesting, are still subject to a risk of non-payment. It doesn't become real until the check is cashed and that's when the participant pays income tax and the company realizes their long-delayed income tax deduction.

I don’t want to belong to any club that would accept me as one of its members - Groucho Marx

Here's the summary of the provision: Sec. 3801. Nonqualified deferred compensation. Current law: Under current law, compensation generally is taxable to an employee and deductible by an employer in the year earned, with two significant exceptions. First, for compensation provided as part of a qualified defined benefit or defined contribution pension plan, the employee does not take such compensation into income until the year in which a distribution from the plan occurs, while the employer generally may take the deduction in the year the compensation is earned. Second, for non-qualified deferred compensation, the employee does not take such compensation into income until the year received, but the employer’s deduction is postponed until that time. The employee generally must take nonqualified deferred compensation into income, however, if the compensation is put into a trust protected from the employer’s creditors in bankruptcy as soon as there is no substantial risk of forfeiture with regard to the compensation. In addition, if the employer is located in a jurisdiction in which the employer is not effectively subject to income tax (i.e., certain foreign jurisdictions), the compensation is immediately taxable as soon as it is not subject to a substantial risk of forfeiture. Other rules apply to deferred compensation paid by a State or local government or tax-exempt organization, in which case an employee may defer tax so long as the deferred compensation is less than the limit on employee contributions for 401(k) plans (i.e., $18,000 for 2017). Provision: Under the provision, an employee would be taxed on compensation as soon as there is no substantial risk of forfeiture with regard to that compensation (i.e., receipt of the compensation is not subject to future performance of substantial services). A condition shall not be treated as constituting a substantial risk of forfeiture solely because it consists of a covenant not to compete or because the condition relates (nominally or otherwise) to a purpose of the compensation other than the future performance of services – regardless of whether such condition is intended to advance a purpose of the compensation or is solely intended to defer taxation of the compensation. The provision would be effective for amounts attributable to services performed after 2017. The current-law rules would continue to apply to existing non-qualified deferred compensation arrangements until the last tax year beginning before 2026, when such arrangements would become subject to the provision. Considerations: • The provision repeals a current-law tax benefit for which only highly compensated employees are generally eligible. • The provision creates simplicity in an area of taxation that is extremely complex under current law. JCT estimate: According to JCT, the provision would increase revenues by $16.2 billion over 2018-2027.

The proposal defines substantial risk of forfeiture as based on continuing performance of services and non-competes don't work. Think of this as not much different than the FICA rules or 457(f) rules on substantial risk of forfeiture. It appears that voluntary deferrals (as if there would be any) would be subject to federal income tax when earned and company contributions upon vesting. Not really clear as to how post-vesting distributions would ultimately be taxed but since I doubt there will be any (if this provision was enacted as written), no need to speculate. The loss of grandfathering of existing arrangements is probably where the JCT gets to raising revenue of $16.2 billion over 10 years. Similar to the phase out in 457A but over 7 years instead of 10 years.

The text of the House Bill has been released. Let the fun begin. https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf The proposal would be to subject NQ plans to income inclusion upon the lapse of a substantial risk of forfeiture (later of contribution or vesting) and existing deferrals would need to be subject to taxation no later than 12/31/2025. SEC. 3801. NONQUALIFIED DEFERRED COMPENSATION. (a) IN GENERAL.—Subpart A of part I of subchapter13 D of chapter 1 is amended by adding at the end the following new section: SEC. 409B. NONQUALIFIED DEFERRED COMPENSATION. (a) IN GENERAL.—Any compensation which is deferred under a nonqualified deferred compensation plan shall be includible in the gross income of the person who performed the services to which such compensation relates when there is no substantial risk of forfeiture of the rights of such person to such compensation.

The employment agreement is ultimately the document.

There are only two reasons I see for the notional crediting of $50,000 per year to the book account instead of MoJo's suggestion. One is to match the accounting the organization is likely doing for the award (a nice straight line amortization), and the other is if there is some intent to credit some sort of notional earnings annually (which doesn't seem to be the case here).

Are you sure this is even an ERISA plan? Looks like it's more structured as a bonus arrangement, not a pension plan, so a top hat filing may not even be necessary. If you think you need to do the top hat filing, then the ERISA claims procedures need to be documented somewhere. Since the rules of 409A apply "separately and in addition to" 457(f), any conclusion that the arrangement is not a deferral of compensation under 409A (short term deferral rule) doesn't mean that 457(f) doesn't apply.

Haven't thought of this situation before. On one hand, the only definition of compensation n the 409A final regulations is under the determination for specified employees (§1.409A-1(i)(2)) which effectively permits usage of any of the 415 definitions, not that this has anything to do with your question. On the other hand, §409A(a)(4)(B)(I) states The requirements of this subparagraph are met if the plan provides that compensation for services performed during a taxable year may be deferred at the participant’s election only if the election to defer such compensation is made not later than the close of the preceding taxable year or at such other time as provided in regulations. [Emphasis mine] You can dive into the final regs §1.409A-2(a) for the rules around initial deferral elections, but there is nothing substantive f the definition of compensation. For me, I find it kind of hard to argue that donated PTO is compensation for services performed, but I also see that it runs through payroll just like other compensation so it would be difficult to differentiate. Ultimately, what does the plan document say, and if the plan document is silent, what does counsel say?

I thought MOOP was just a more polite way to say bullsh*t

Nope, living trusts do not cease to exist upon the death of the grantor. The trustee (or successor trustee) continues to oversee the trust as directed by the trust document. Wouldn't say it irrevocable, but if any of the terms of the trust need to be amended post-death of the grantor, you need beneficiary approval and also may need to go to court. Not an attorney either, but acting a trustee post-death of the grantor right now.

I read somewhere that someone once asked why doesn't Halloween ever fall on Friday the 13th?

I've seen some poorly drafted DROs in the NQ world that referred to the divorce decree for the splits; we've received redacted decrees with that information.

As the OP referred to "deferred compensation", it makes me wonder what the implications are if this were a nonqualified plan; I usually see a splitting of gains and losses as well. A DRO can accelerate payment to the AP but not to the service provider; from a 409A perspective, I would imagine that the AP would repay the company and the employee's plan balance adjusted. Of course, if the company (and NQ record keeper) aren't involved with the revised DRO, how would this ever get reported or audited as a 409A issue?

I think it's likely that tax software could find the excess deferrals since the entire W-2 gets entered/downloaded, including the Box 12 codes, so it's just adding Code . I used tax software that found I had excess FICA.

Actually, Box 12 Code Y is not required until the income inclusion regulations are finalized. The PV of benefit is included in Boxes 3 and 5 in the year FICA is being assessed, and Box 1 (and probably Box 11) in the years of distribution.

Actually, I read 1.409A-3(i)(5)(iv) as saying that the payment would be treated not as a CIC payment but a scheduled date payment. Doesn't look like a toggle issue to me.

Nothing needs to be amended today based on the proposed regulations. IF the regulations ever become final, then there may be opportunities to amend existing plans. Frankly, in this case, the proposed regulations are a bit more permissive than what prior guidance (Notice 2007-62) indicated.

If you are talking about a 457(f) plan, then the beneficiary could not make changes at the time of death. Payments upon death would either have to be specified in the plan or elected "up front" per the 409A election timing rules.

I get the change at 242.956, but I've got time too much on my hands. If there is a spike to 247.328, HCE bumps to 125,000.

Do you really need to merge the plans? I frequently see multiple plans record kept as if it is a single plan, but separate plan documents control. That way, changes to plan documents don't inadvertently create delays to the distribution payments (e.g. changing the threshold for qualifying for installments to be consistent may trigger the 1 year/5 year rule). This seems to be common when one plan is frozen for new deferrals as is contemplated here. If you are doing a termination and liquidation, note that NQ Plan 1 and 2 are not aggregated as NQ Plan 2 is a elective account balance plan and NQ Plan 1 is a non-elective account balance plan. You lost the ability to do the termination and liquidation under the change in control exception since it's been longer than 12 months. The only way to terminate the NQ Plan 2 is under the voluntary termination and liquidation provisions (the 1 year/2 year/3 year rules) and it would affect any other elective account balance plans (if any).