ERISA-Bubs

I have an agreement under which an entity reimburses an individual for certain expenses. At the end of the reimbursement period, the individual must pay the entity back. However, so long as the individual continues to practice in a specified geographic area, the amount is forgiven so that the individual has no obligation to repay. The agreement specifically provides that the individual is not an employee of the entity. Do I have any 409A issues here?

Does anyone know the withholding and reporting requirements for SARs exercised by a former employee? The rules are pretty clear for nonqualified deferred compensation paid to former employees, but the SARs at issue are designed to avoid 409A, so they don't fall under those rules. Should this be reported on a W-2, even though the employee is no longer with the company? Does withholding apply (and, if so, at what rate)?

Great comments. Thank you both.

We have a nonqualified deferred compensation ("NQDC") plan. A retiree is due to start receiving payments this year. We currently have the funds invested in a third party service provider who will be making the payments to the reitree. I understand we, as the former employer, are supposed to report this on a Form W-2 because the NQDC was earned as an employee. But how do we handle withholding since it will not be paid from our payroll? Should the third party withhold and report on a 1099? Should we ask the third party to pay us so we can process through payroll (this is NOT what we want to do if we don't have to)?

The regs say a payment will still be treated as being paid on the designated payment date if paid the later of (1) the end of the year of the designated payment date, or (2) the 15th day of the 3rd month following the payment date. Focusing on (2) above, say a payment is due 12/31/2012. Payment is still treated as paid on the payment date if paid on, say, 2/5/2013. Question: Should this be treated as taxable income on 12/31/2012 (the date the payment is treated as being paid under 409A) or on 2/5/2013 (the date actually paid)?

I have two requests, a general one and a specific one. First, does anyone have a good source for how to handle Pre-409A issues? Second, we have two pre-409A plans. One participant in both received too much money from Plan 1. Can we take it out of what we owe him under Plan 2? I know 409A allows an employer to withdrawal amounts from a nonqualified plan for employee debts up to $5,000 per year, but have no idea how to handle this with pre-409A money.

I understand the general rules for reporting nonqualified deferred compensation ("NQDC"): 1) when vested, included in social security / medicare (boxes 3 and 5 on W-2) 2) when distributed, include in income (boxes 1 and 11 on W-2) How do we treat earnings? The only guidance I can find says that deferred compensation includes earnings. Does that mean I have to report earnings every year in social secuirity and medicare so long as they are vested?

Can a plan provide the following: 1) A percentage of compensation noneletive contribution for all employees, and 2) For employee's contributing more than 2% compensation, an additional percentage of compensation match. There are two unusual things here. First, the "match" doesn't kick in until we get to 2% contribution. Second, the "match" is a percentage of compensation, not a percentage of elective deferral. I do not see a prohibition for either, but I've also never seen either used before. Is this an allowable structure?

We took too much money out of a participant's paycheck for 401(k) deferral. This happened twice. Once the money was put into the plan, but we immediately realized it and corrected it (same year) by taking the money out of the plan and returning it to the employee in a later check. Another time the money was not put into the plan, we realized we deducted too much and paid it back to the employee in a later check. Are either of these a plan failure that require correction under EPCRS? They were both minor errors and both corrected soon after the mistake was made. Any help is appreciated.

I need to do a document correction on a plan subject to 409A. The problem is there are some noncompliant definitions, including a definition of Change in Control. For simplicity, we'll pretend that is the only error. I can correct by amending the definition of Change in Control. So long as a Change in Control under the bad definition does not occur and trigger payment within a certain time period thereafter, I'm golden. Here's the rub: The employee has already been paid out. But he hasn't been paid out under Change in Control, so there is no issue there. I don't see anything in the correction procedures that says the employee can't be paid out already. The correction seems to comply with the requirements -- the definition will be changed and no Change in Control under the bad definition will trigger payment. But does this violate some other rule or the "spirit" of the correction in some way? Is it too late to correct?

It was a lump sum payment window, so no right remains once the window was closed. The window was disclosed in an SMM and the SMM was given to everyone affected by the window. The SMM is not given to new employees who are not eligible for the window. We don't think it makes sense to include in the SPD since byt the time the SPD is issued, the window will have ended. But I can't find anything in the regulations that excludes temporary provisions from being included in the SPD. Anyone know of any guidance?

We amended our plan to include a provision that is only applicable for a limited time. We sent an SMM to our employees to notify them of the change. Do we need to amend the SPD to cover the provision, even though the limited time will have expired by the the time the new SPD is issued and future eligible employees are not affected by the provision?

We have a multiemployer plan that used to only cover employees in the union and employees of the union. Treasury regulations provide that these types of plans need not contain Top-Heavy provisions. A couple years back, we opened the plan to others but never added Top-Heavy provisions. Can we retroactively add the Top-Heavy provisions if we're still in the remedial amendment period?

Under 409A a participant can change form of payment so long as, generally, the change doesn't take effect for a year and the payment is deferred an additional 5 years from when it otherwise would have been paid. I know there are some nuances, but I'm not concerned with those. If an employee has one payment scheduled at termination of employement, can he make a subsequent deferral just on half of that payment? For example, participant is to receive $10,000 on termination. Can he make a subsequent deferral election at least one year in advance to receive $5,000 5 years after termination--the other $5,000 still payable on termination?

Can anyone help me out with this? I'm struggling to find confirmation and I'm nearing my deadline for reporting back. Thank you.

If you're looking for a model document, try looking through public companies' securities filings. Some have the entire plan as an exhibit.

Jpod - Unfortunately not. I have a follow up question that I've posted as a new topic, but might also be appropriate to post here. I get that there is not substantial risk of forfeiture in a situation like above, because a person can quit at any time and get compensation since there is payment upon separation for any reason. What about the case where there is substantial risk of forfeiture for one nonqualifying payment event but none for a qualifying payment event? Example: The plan calls for payment on the earlier of: 1) IPO, in which case payment is made within 2 1/2 months of the fiscal year, OR 2) A specified date (if employed), in which case payment is made over a 3 year period. Clearly, and IPO is not a qualified payment event under 409A. But payment is made within 2 1/2 months of IPO, and the amount is subject to a substantial risk of forfeiture at all times before the IPO. Does the fact that payment can be made outside the short term deferral period for the specified date mean I can't use the short term deferral exception to cover the IPO event?

Can I use the short term deferral for one payment event, but not all payment events? For example, I have two payment events, one of which is 409A compliant (Date Certain) and one of which is not (IPO Event). The payment is to be made the earlier of Date Certain or IPO Event. If paid on Date Certain, it will be paid out over 36 months. If paid on IPO Event, it will be paid within 2 1/2 months following the end of the year. Can I use the short term deferral exception to cover the IPO Event even though the plan allows for payment after the 2 1/2 month period in the event the Date Certain comes first?

You're correct -- any separation triggers the separation payment. So, you think there is no argument that the two are separate payments?

jpod - That is precisely my dilemma. If it is one payment, it clearly would not satisfy the short term deferral exception. If it is two payments, the IPO payment would satisfy even though the separation payment does not. Here are more specifics: The plan calls for a lump sum payment within short term deferral of an IPO, calculated based on company value at the time. If the employee terminates employment before an IPO occurs, the employee still gets a payment, but it is calculated pursuant to a different calculation. This is paid in 3 annual installments, and the plan does not provide that they are treated as separate payments. Because the two payments are payable on different events and caclulated differently, I would like to treat them as two separate payments, thus preserving the short term deferral exception for the IPO payment.

The short term deferral exception under 409A applies separately to each payment. We have a plan that provides for one of two payments upon the earliest of: 1) an IPO, within the short term period, OR 2) separation from service. The first payment event is not compliant with 409A, but is paid within the short term deferral period. The second payment is compliant with 409A, but is not within the short term deferral period. There is a separate calculation for each payment. Does this comply with 409A? Does the first payment satisfy the short term deferral exception, or does the fact the plan also allows a non-short term payment upon separation ruin the entire plan?

Only US income can be deferred under the plan. This person receives no US income. Does that matter? It would seem that an international company with lots of US citizens working abroad would never be able to pass coverage testing if those employees have to be included.

We have several US Citizens that work in foreign countries and receive only non-US source income. I know they are not excluded from coverage testing as nonresident aliens because they are US Citizens. Is there any way to exclude them from coverage testing? I notice in Sal's book that he provides that a US citizen in Puerto Rico or in one of the US possessions must be included in coverage testing. This implies to me that if they are not in Puerto Rico or a US possession, that they may be excluded. Under what theory can I exclude them? I'm also exploring the theory that they have no compensation since it is all non-US Source income so I can treat them as benefitting under the plan based on Treas. Reg. § 1.410(b)-3(a)(2)(ii)© that provide if an allocation is not made because of §415 limits, the employee is deemed to benefit for coverage purposes. I think this might fall apart since foreign income counts under 415. Could I treat them as non-employees? Do I have a basis for that?

We know that under 162(m) performance-based compensation is not subject to the $1 million deductibility limit. Two questions regarding the compensation formula. The regs are clear that the comp committee may not retain discretion to determine the fraction each employee may receive from a bonus pool. (§ 1.162-27(e)(2)(vii)(Example 7)). However, the regs also provide that the performance goal can be established in the first 90 days of the performance period. Can a plan allow the comp committee to determine the percent each employee may receive, on a year-to-year basis, so long as the comp committee establishes the percentage inthe first 90 days of the performance period? (I think this is yes.) Second, assuming the first answer is yes, will the plan need to be reapproved every 5 years? The regulations provide that if the comp committee has authority to change targets under the performance goal after shareholder approval, the plan must be reapproved in the 5th year following approval. Is authority to change allocation of the bonus pool the same as authoirty to change "targets"? (assume the comp committee has not discretion to change the performance goal, only the allocation of the pool). Any help is greatly appreciated.

There are special rules regarding when a participant can elect to defer commission payments. You can use different rules for different service providers so long as "similarly situated" service providers are treated the same. Has anyone seen any guidance regarding what constitutes "similarly situated"?