James B

Advising on another deal where the concern is 280G. They want to provide a normal vesting for SERP benefits so that they are already vested prior to a change in control. But they also want to impose forfeiture on a termination for cause and for a voluntary quit that isn't for a good reason. I think they mean a pretty good reason rather than "good reason" under 409A. In other words, the risk of forfeiture can't be "substantial." Anyone ever addressed that?

Seeing this thread late ... I've always thought that a fiduciary that buys products with early termination charges has committed the fiduciary breach of stupidity, unless the plan is tiny and does not have access to decent investment products. I still see these in the non-profit world, especially individual contract sales. But lately, I've seen "market adjustments" on large stable value funds upon plan termination or merger. This is not exactly fiduciary incompetence at work.

I have been asked the same question by a client that is working on an IPO. They have restricted stock awards will become vested between now and the post IPO lock-up period. They don't want to use their precious cash today to fund the required withholding and hope employees can take advantage of a liquid stock market to cover taxes. It reminds me of the SERP deals pitched by insurance brokers with a "rolling risk of forfeiture." The IRS obviously hates this now under 409A and 457(f). I never thought that concept worked because, in truth, the risk of forfeiture was illusory in those deals. For my current client, I'm advising that we should not do it unless we can come up with a business element in the bargain to give employees something other than deferring taxation. Their executives may be legally restricted from trading during this period, which will help. I think the issue is demonstrating that the risk of forfeiture remains "substantial."

No business hardship at all. Our client simply delayed making the decision until now but still wants the same outcome ... no problem, right? Good point on the successor plan rule, although Plan 002 would only have NHCEs. This is another one of those frustrating areas where you seem to need two plans to achieve a legal result. It seems that if it can be done in two plans, it should be permissible in one plan. Thank you for the feedback. I've not seen any guidance for spin-offs, either, although there is a carve out for 410(b)(6) in a transaction. The safe harbor regs specifically permit making the contribution to a separate plan. I don't think this scheme violates the intent of the regulations. Maybe I can get a response from the National Office.

Does anyone have any thoughts on amending a safe harbor plan (3% non-elective) mid-year to exclude from eligibility a class of employees. These employees would be spun off into a new plan (No. 002) that mirrors the old plan (No. 001), is on the same administrative platform, same investments, etc. There are business reasons for the spin-off. The employees in plan No. 002 are receiving a substantial pay increase but are still NHCE's (barely). Employees in the old plan will receive a additional profit sharing contributions that are substantial and are needed for gateway requirements. There is no other way to pass gateway contribution requirements for this group without using two plans. Seems to me that the NHCEs will be getting exactly what they were promised, albeit through a Plan No. 002 rather than 001. No one is actually losing eligibility. So, to the point of avoiding amendments that change the rules of the game for participants, this one doesn't and I would hope is ok. Feedback appreciated.

I don't see a perjury risk. It is such a facts and circumstances inquiry and reasonable minds can easily differ. The law is intended to be remedial. The subsidy is for the employee, not the employer. So I don't see why an employer should not make a call that helps the employee. The biggest concern to me - out of employee fairness - is how in the world the DOL can possibly process zillions of appeals. The agent I spoke to is a little worried about it. And very worried about how they will end up handling the grey areas. Some will be close calls. It seems to me that letting the DOL have all of these appeals may create more work in the long-run for the employer, and cause a lot of anxiety for the employee who just "voluntarily" took a pre-layoff package. There are financial reasons for the employer to be less than generous. It has to provide an advance on the premium subsidy and wait for the credit when filing the 941. There will still be some level of adverse selection by those who elect COBRA. I don't see employers being motivated to enter into collusion with their employees and pretend a voluntary quit is involuntary. The situations we've seen so far under the new law have been clear-cut workforce reductions. We'll have to deal with the grey area case when it comes.

The employer can attest that your termination was involuntary. Since they get a payroll tax credit to cover the cost of the COBRA subsidy, they might be willing to do that. However, the subsidy only applies to terminations that occur between September 1, 2008 and Dec. 31, 2009. If you are eligible for the subsidy, they are supposed to send you a notice telling you that you can sign up for it. It is a fairly weird law and the administration on this thing will surely be a nightmare. As far as a new job, I'd recommend coming up with a few billion dollars and buying up some of the so-called "toxic" assets from financial institutions. Those instruments have been marked down well-below their true value. If you don't have a few billion laying around - I don't - finding a job in this market is tough. Everyone believes we are in a tough market so we are all hesitating to hire. While the low-hanging fruit is gone, there are lots of opportunities in a down market. People still want to earn a living and businesses want to make money, regardless of the economy. In law practice we have to retool ourselves to find where our skills can be used in this economy. It isn't much different than what you are facing. Best of luck.

https://service.govdelivery.com/service/sub...?code=USDOL_231 is the place where you can subscribe for updates on COBRA under the ARRA. I just signed on through the prompts and it seemed to work.

The ARRA says you only get subsidized COBRA if your termination is "involuntary." Voluntary quits do not count. Your facts sound like it might be involuntary. You can ask your former employer if they will provide you with the subsidy. If not, you can appeal to the DOL. There is another string going on the topic of involuntary termination you should check out. I got feedback from a DOL agent on this question: I spoke with a Dept. of Labor representative Friday on the meaning of "involuntary" termination. The example I gave was an employee who voluntarily accepts an early retirement package offered by the employer, knowing that involuntary workforce reduction is possible if there are not enough voluntary retirements. The Ways and Means Committee website says that involuntary is a termination at the "direction of the employer." The agent agreed that in some situations facts like this would be enough to show that the termination was at the direction of the employer, even though the individuals made an election to leave. He noted that they are getting this question frequently and that the legal staff is working hard to develop a policy that can be applied consistently. He called this a "grey" area and noted that the employer may have some latitude in determining how to characterize a termination in this kind of situation. However, the DOL is hesitant to issue a policy statement too quickly, as smaller employers would have too much difficulty providing health insurance if access to the subsidy becomes too easy. The agent also provided me a web address where I will be registered to receive updates on the COBRA subsidy as they become available.

This is a tough issue for the DOL. I spoke with a Dept. of Labor representative Friday on the meaning of "involuntary" termination. The example I gave was an employee who voluntarily accepts an early retirement package offered by the employer, knowing that involuntary workforce reduction is possible if there are not enough voluntary retirements. The Ways and Means Committee website says that involuntary is a termination at the "direction of the employer." The agent agreed that in some situations facts like this would be enough to show that the termination was at the direction of the employer, even though the individuals made an election to leave. He noted that they are getting this question frequently and that the legal staff is working hard to develop a policy that can be applied consistently. He called this a "grey" area and noted that the employer may have some latitude in determining how to characterize a termination in this kind of situation. However, the DOL is hesitant to issue a policy statement too quickly, as smaller employers would have too much difficulty providing health insurance if access to the subsidy becomes too easy. The agent seemed very interested in the input I provided as an attorney and took a note when I said that this topic is being blogged. He gave me a web address where you can register to receive updates on the COBRA subsidy as they become available. I'll try to post the address if it works.