XTitan

I've seen diversity of thought on combining administrative convenience with the lag rule, but pushing the collection into 2018 would require assessing FICA in 2018, so you have OASDI up to the SSWB in addition to HI to collect. OP didn't say whether this was a public company or not, but thinking of this as a loan could have SarBox issues.

The FICA special timing rule on a defined benefit (non-account balance) arrangement (and $50k per year for 10 years sure sounds a defined benefit to me) would be to subject the lump sum equivalent to FICA up front, so I'd argue you may even get to discount the $500k lump sum. Salary continuation sure seems to create a legally binding right today for compensation to be paid in the future, hence 409A comes in, with all it's required written documentation and such. An employment contract with commitments to future compensation may still need to comply with 409A.

I think you have an argument for a discount factor on the $250,000. Also, if you believe you can combine the rule of administrative convenience plus the lag rule, you might be able to wait until distribution to deduct the lump sum FICA. Being in the later tax year may cause the FICA to include OASDI while keeping the payment at vesting may allow a deduction only for HI (assuming the exec is already at or above the SSWB in June). Back to Austin's question - the exec should not be given the option to select the tax year to receive the distribution. That goes to constructive receipt issues that still exist outside of 409A.

Sgt Pepper's Lonely Hearts Club Band was released 6/1/1967. A co-worker of mine for the last 15 years said he's never heard of it. Inconceivable.

I have some of the 3/31/2017 data Moody's Daily Long-term Corporate Bond Yield Averages Utilities Industrial Corporate Average 4.25 4.21 4.23 Aaa 3.94 3.94 Aa 4 4.01 4.01 A 4.18 4.18 4.18 Baa 4.58 4.7 4.64

There is no statutory authority that permits recovery for FICA assessed on NQ deferrals later not paid. I think there were a couple of court cases on this as well.

I've seen 457(f) plans with post-vesting distributions. I've seen 457(f) plans with installment payments. Expecting to see 457(f) plans with voluntary deferrals. It may not make sense from a tax perspective (to the participant), but the employer may have their own reasons for the designs. On the other hand, a short-term deferral arrangement + an inadvertent operational error = possible need to comply with 457(f)/409A, so a catch-all provision might just make some sense..

Depends on the plan document and the form of the election. If the initial election was to pay upon separation, and due to specified employee status the 6 month delay is imposed, then a subsequent distribution should be separation + 5 years. The 6 month delay is satisfied since 5 years is longer than 6 months. I know I've seen this commented on somewhere but I can't find it offhand. If the form of the initial election is 6 months after separation, then the subsequent distribution election could not commence earlier than 5.5 years after separation.

The regs for plan termination and liquidation under 1.409A-3(j)(4)(ix)(B) permit the termination and liquidation of plans pursuant to change in control "with respect to each participant who experienced the change in control event". The plan aggregation rules would only apply to the Employer 1 plans. The Employer 2 employees should not be affected by the termination of the Employer 1 plans.

409A can also rear it's ugly little head depending on the nature of the promise. If the promise is the death benefit, then generally this would fall under the death benefit exemption. If, on the other hand, the commitment is to pay premiums of a specified amount/duration, the legally binding right to future compensation may bring 409A into the picture. Company deductions for compensation should generally follow vesting. For example, if the company pays 20k per year for 5 years and the program has a 5 year cliff vest, then the employee would have income in the amount of $100,000 at the time of vesting, while the company takes the deduction at that time (subject to reasonable compensation under section 162).

I suggest discussing with counsel familiar with split-dollar.

https://www.irs.gov/pub/irs-drop/n-16-62.pdf The official release!

I keep the following link bookmarked https://www.ssa.gov/OACT/COLA/AWI.html. The wage index was 48,098.63, and I have yet to figure out any good source to estimate this ahead of the release. If it wasn't for the negative CPI-W last year, the wage base would have been $122,700 for 2016, so the jump isn't really that big.

Social Security Wage base has been announced at $127,200. The September CPI doesn't change Tom's numbers above, so now it's up to the IRS to get the release out.

The CPI numbers are released tomorrow, so the limits can be calculated. Usually, the IRS officially releases the limits later the same day; Social Security usually beats them to the punch.

I'm not very knowledgeable about 5500s by any means, but why is the 457 on the 5500 to begin with? Did the client not file a top hat letter with the DOL? The top hat letter would have had a plan number on it. A nongovernmental 457 plan must be unfunded and so has no plan assets; sure there may be trust assets or corporate assets set aside to informally fund the benefit, but that's different. Count me clueless on how to rectify.

The lack of a SRF would subject the contributions to FICA immediately as the amounts appear to be 100% vested.

Playing devil's advocate for a moment. Is the definition of involuntary separation subject to abuse? Is it objective and non-discretionary? 1.409A-3(c )(1) gets you the double trigger of CIC/separation and 1.409A-3(c )(2) gets you diferent forms based on age/YOS, but there isn't anything permitting a specific form for involuntary separation.

Here is the relevant section from the 1099-MISC instructions: https://www.irs.gov/pub/irs-pdf/i1099msc.pdf Deceased employee's wages. If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death. If you made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report them only as social security and Medicare wages on the employee's Form W-2 to ensure that proper social security and Medicare credit is received. On the Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6; do not show the payment in box 1 of Form W-2. If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes. Whether the payment is made in the year of death or after the year of death, you also must report the payment to the estate or beneficiary on Form 1099-MISC. Report the payment in box 3 (rather than in box 7 as specified in Rev. Rul. 86-109, 1986-2 C.B. 196). See the Example that follows. Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is an individual beneficiary, enter the name and social security number of the individual; if the recipient is the estate, enter the name and employer identification number of the estate. The general backup withholding rules apply to this payment. Death benefits from nonqualified deferred compensation plans or section 457 plans paid to the estate or beneficiary of a deceased employee are reportable on Form 1099-MISC. Do not report these death benefits on Form 1099-R. However, if the benefits are from a qualified plan, report them on Form 1099-R. See the Instructions for Forms 1099-R and 5498.

The IRS has expressed concern about voluntary deferrals to a 457(f) plan. See this extract from Notice 2007-62 https://www.irs.gov/pub/irs-drop/n-07-62.pdf: Section 1.409A-1(d)(1) provides that an amount is not considered subject to a substantial risk of forfeiture beyond the date or time at which the recipient otherwise could have elected to receive the amount of compensation, unless the present value of the amount made subject to a risk of forfeiture is materially greater than the present value of the amount the recipient otherwise could have elected to receive absent such risk of forfeiture. This is because, absent tax considerations, a rational participant normally would not agree to subject a right to amounts that may be earned and payable as current compensation, such as salary payments, to a condition that subjects the right to the same payments to a real possibility of forfeiture. Accordingly, in this situation, agreement to subject the amount to a substantial risk of forfeiture indicates that the recipient of the compensation is confident that there is not a real risk of forfeiture and is only subjecting the amount to the purported risk of forfeiture as a means of avoiding taxation. Thus, amounts that an individual could have elected to receive under a salary deferral election generally cannot be made subject to a substantial risk of forfeiture under the rules of § 409A beyond the date or time the salary would otherwise have been received.

From IMdb - The Ace Trucking Company was one of the most innovative comedy troupes of the 1960s and 1970s. It consisted of four guys and one woman with George Memmoli, Michael Mislove, Bill Saluga, Patti Deutsch and Fred Willard. They were doing "sketch comedy" long before show such as Saturday Night Live (1975), "Friday" or MADtv (1995) ever came along. The Ace Trucking Company appeared 35 times on "The Tonight Show with Johnny Carson" between April 1969 and May 1975. They also performed their comedy sketches as well as improvised routines on "The Mike Douglas Show", "The Dick Cavett Show", Don Kirschner's "The Midnight Special", and "This Is Tom Jones" (as series regulars). They also appeared in the motion picture, "The Harrad Experiment", and recorded an album of improvised sketches for RCA records. One of those actors whom everyone has seen but no one knows his name, Bill Saluga, of the Ace Trucking Company comedy troupe, was seen all over television in the seventies and early eighties as an obnoxious little fellow named "Raymond J. Johnson, Jr." When addressed as "Johnson" though, he would launch into a tirade starting, "You doesn't has ta call me Johnson--you can call me RAY or you can call me JAY...."

Prior to 2005, non-qualified plans, which are nothing more than contractual agreements between employer and employee, have been around as long as there has been income tax. Plans were designed to comply with the constructive receipt rules, avoid economic benefit rules, relying on limited guidance, court cases, etc. ERISA exempted top hat plans from many (but not all) of it's provisions. The American Jobs Creation Act codified the rules applying to non-qualified plans, partly in reaction to the how certain companies allowed their executives to receive accelerated non-qualified benefits in anticipation of bankruptcy. The specified employee rule was designed to limit a key employee from terminating immediately in anticipation of a bankruptcy and still collect benefits. It helps prevent the need to clawback compensation from an individual who may have helped, how should I put this, "run the company into the ground." The IRS would get very little tax sooner - if the employee is paying tax, then the employer is taxing a tax deduction at the same time. An employer contribution is still considered deferred compensation as the employee has a legally binding right today to compensation to be paid in the future. If you are having these questions about non-qualified plans, you should really seek expert counsel in the field.

Section 1.409A-2(b)(6) discusses the application of the subsequent distribution rules to multiple payment events. In effect, when you have an "earlier of" election, the distribution change rules apply independently. In your example, does the form of payment change upon separation? If the change from lump sum to installments affects the separation payments, then the separation payment is delayed 5 years as well. If it's still lump sum, then the change in the scheduled date distribution did not impact the separation election and the lump sum could be paid at separation; the plan document may mandate the 5 year delay anyway.

I'm confused. If you have an operational error, why do you need to amend the plan? Is the plan in currently in documentary compliance? I assumed that the reason for the plan amendment was failure for the plan to comply with 409A and thus the reference to Notice 2010-06.

Depending on the error, you may be able to take advantage of the corrections procedure under Notice 2010-06 that may limit some of the additional tax consequences.