Everett Moreland

I agree with Steelerfan on incorporation by reference. You might consider the following: 1. The regs have 5 options in defining "separation from service" and 4 in defining "change in control." It makes sense to me to specify what the plan does for each option, to avoid ambiguity. 2. All employers and employees know what "separation from service" and "change in control" means--It means what they think it means. So failing to torture the employer and employee by including the referenced regulations in an appendix or separate document makes it more likely that the plan will not be administered as required by 409A.

The following from the preamble (72 Federal Register 19268 (April 17, 2007)) indicates to me that it can be any amount: H. Cashout Rules Commentators requested various modifications to the cashout rules generally expanding the conditions under which a service recipient may exercise discretion to cash out a service provider's entire amount deferred under a plan. The final regulations generally provide that a service recipient may exercise such discretion at any time that a service provider's amount deferred under the plan is less than the applicable dollar amount under section 402(g)(1)(B) for that calendar year. For this purpose, the plan aggregation rules apply, so a service recipient may not use this rule to cash out an amount under one arrangement but not another arrangement where the two arrangements would be treated as one plan. The final regulations, unlike the proposed regulations, do not require that a service provider have separated from service for the service recipient to cash out the amount deferred. In addition, the plan does not need to be amended to provide this discretion to the service recipient. Finally, the amount has been changed from $10,000 to the limit on elective deferrals under section 402(g) to permit the amount to be adjusted for changes in the cost of living. The final regulations also provide that a plan under which amounts are to be paid in installments may provide for immediate payment of all remaining installments if the present value of the deferred amount to be paid in the remaining installments falls below a predetermined amount, and such immediate payment will not constitute an accelerated payment for purposes of § 1.409A-3(j)(1), provided that such feature (including the predetermined amount) is established no later than the latest time at which the time and form of payment is otherwise required to be established, and provided further that any change in such feature including the predetermined amount must comply with the requirements for a change in the time and form of payment.

See the following from Revenue Ruling 69-421 (declared obsolete by Revenue Ruling 72-488): "Provisions may also be made in stock bonus and profit-sharing plans for accelerated distributions because of hardship provided that the term 'hardship' is defined, the rules with respect thereto are uniformly and consistently applied, and the distributable portion does not exceed the employee's vested interest. Similar provisions, however, are not permissible under a pension plan, since, as provided for in section 1.401-1(b)(1)(i) of the regulations, such a plan is established and maintained 'primarily to provide systematically for the payment of definitely determinable benefits to * * * employees over a period of years, usually for life, after retirement.'" My guess is that a pension plan could be amended to allow hardship distributions after the earlier of normal retirement age and age 62, but I've not checked this.

As to PPA 2006 guidance, see the two linked documents on the following web page, under Published Guidance: http://www.irs.gov/retirement/article/0,,id=165131,00.html

http://www.irs.gov/pub/irs-tege/memo_060602.pdf

I'm not sure what you mean by reservation of rights. The discussion in Strunk v. Public Employees Retirement Board, 338 Or 145, 108 P3d 1058 (2005), about the folllowing Oregon Revised Statutes 238.375(3) might help: "No member of the system or beneficiary of a member of the system shall acquire a right, contractual or otherwise, to the increased benefits provided by [ORS 238.375 to 238.380]."

ftp://ftp.irs.gov/pub/irs-tege/cola_table.pdf

My guess is that almost no employer-paid disability insurance policy is a nonqualified deferred compensation plan under Section 409A. To determine that you need to read and understand the policy, 1.409-1(a)(5), and 31.3121(v)(2)-1(b)(4)(iv)©. I sympathize with you about 31.3121(v)(2)-1(b)(4)(iv)©. It might win an award as the most tortuously abstruse tax regulation.

J4FKBC: I don't pretend to know the answer to your question, but some years ago noted the following 1.401(a)(4)-3(f)(3)(ii) Example 1 in connection with the same question: "Plan A provides a benefit of two percent of average annual compensation per year of service for all employees. In addition, Plan A provides an actuarial increase in an employee's accrued benefit of six percent for each year that an employee defers commencement of benefits beyond normal retirement age. For employees who continue in service beyond normal retirement age, the employee's two-percent accrual for the current plan year is offset by the six-percent actuarial increase, as permitted under section 411(b)(1)(H)(iii)(II). For purposes of this section, the actuarial increase (and hence the offset) may be disregarded, and thus all employees may be treated as if they were accruing at the rate of two percent of average annual compensation per year."

I believe that securing the severance pay will result in the severance agreement being a transfer of property subject to taxation under IRC Section 83. See the following from 1.83-3(e): "For purposes of section 83 and the regulations thereunder, the term 'property' includes real and personal property other than either money or an unfunded and unsecured promise to pay money or property in the future."

"Anyone with me that a quiet, retroactive amendment, together with documentation that the amendment reflects the employer's original intent, would be ok?" My impression is that a retroactive clarifying amendment excluding a class of employees risks IRS rejection in the determination letter process unless done through EPCRS.

The plan must obtain the surviving spouse's consent to start the QPSA before the later of normal retirement age and age 62, unless the QPSA'a present value is $5,000 or less. A plan may impose more stringent consent requirements, but I've not seen a plan that does. So, answering your questions: 1. The surviving spouse does not elect to defer; the default is deferral to the later of normal retirement age and age 62. The surviving spouse may consent to receive it before then, such as at early retirement age. 2. The plan cannot require the surviving spouse to receive it before normal retirement age.

417(e)(1): "A plan may provide that the present value of a qualified joint and survivor annuity or a qualified preretirement survivor annuity will be immediately distributed if such value does not exceed the amount that can be distributed without the participant's consent under section 411(a)(11)." 1.417(e)-1(b)(1): "No consent of the participant or spouse is needed for distribution of a QJSA or QPSA after the benefit is no longer immediately distributable (after the participant attains (or would have attained if not dead) the later of normal retirement age (as defined in section 411(a)(8)) or age 62)." IRM 4.72.9.3.7(3) (04-01-2006): "Determine, by looking at the consent forms of the participant and spouse, that any distribution made while the benefit is immediately distributable has the consent of the participant or the surviving spouse and is in the form of a QJSA or QPSA."

A recent IRS statement by Plan Sponsor: Final rules under tax code Section 409A should be out fairly shortly, and they will be "voluminous," Cheryl E. Press, senior counsel at the Internal Revenue Service's Office of Division Counsel/Associate Chief Counsel (Tax-Exempt and Government Entities), said last week, according to a report by Washington-based publisher BNA. The guidance is expected by June 30 and will address what constitutes a substantial risk of forfeiture, she said, according to the report.

Both are correct. For planning purposes I find it more helpful to think of the marginal tax rate as 1.85% of the nominal marginal tax rate. This is because you can to some extent control the amount of your other gross income in retirement (such as by converting a traditional IRA to a Roth IRA) but you can't control the amount of your social security benefits. So, focusing on what you can control, I find it helpful to know that, if your nominal marginal tax rate in retirement will be 28% and your other income is in the range in which an additional 1$ of other income will result in an additional $.518 of tax, you can reduce your tax liability in retirement by $.518 for each dollar you receive in retirement that is nontaxable (because a Roth IRA distribution) rather than taxable (because a traditional IRA distribution).

mjb: What DARNOLD is referring to is that, when social security benefits are taxed, your marginal tax rate can be 1.85% of what you think it is. This is because $1 of other gross income can cause $.85 of social security benefits to be taxed, resulting in an additional $.518 of tax from $1 of other gross income, if your nominal marginal rate is 28%. The article at the following link (Hammer, "Minimizing the taxability of Social Security benefits," The Tax Advisor (September 1, 1997)) has a good discussion of this. http://www.thefreelibrary.com/Minimizing+t...fits-a020031490 This can make Roth 401(k) or 403(b) contributions much more attractive that regular 401(k) or 403(b) contributions.

My guess, after reading EBSA FAB 2006-3, is 12/31/07 or 2/14/08. 12/31/07 is based on the following in FAB 2006-3: "The alternative notice requirement for defined benefit plans provides that the requirements of section 105(a)(1)(B)(i) shall be treated as met with respect to a participant if at least once each year the administrator provides the participant notice of the availability of the pension benefit statement and the ways in which the participant may obtain such statement. If a plan elects to take advantage of the alternative notice provision in section 105(a)(3)(A), the required notification must be furnished not later than December 31, 2007." 2/14/08 is based on the following in FAB 2006-3: "Pending the issuance of further guidance, it is the view of the Department that the furnishing of pension benefit statement information not later than 45 days following the end of the period (calendar quarter or calendar year) will constitute good faith compliance with the requirement to furnish a pension benefit statements in accordance with section 105(a)(1)(A)(i) and (ii)." Given the potential $100/day/participant penalty, I would use 12/31/07 until EBSA guidance.

Whether an option complies with or is exempt from 409A is a complicated analysis. You cannot rely on any analysis you get here. The best person to answer your question is the employer who granted the option to you.

2006, based on the regulations cited above

2006. 1.457-2(b)(1): "The amount of compensation deferred under an eligible plan is taken into account as an annual deferral in the taxable year of the participant in which deferred, or, if later, the year in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture." 1.457-8(a)(2)(ii): "Amounts deferred under an eligible governmental plan must be transferred to a trust within a period that is not longer than is reasonable for the proper administration of the participant accounts (if any). For purposes of this requirement, the plan may provide for amounts deferred for a participant under the plan to be transferred to the trust within a specified period after the date the amounts would otherwise have been paid to the participant. For example, the plan could provide for amounts deferred under the plan at the election of the participant to be contributed to the trust within 15 business days following the month in which these amounts would otherwise have been paid to the participant."

See 1.417(a)(3)-1©(2)(iv) and the Age 65 Commencment in 1.417(a)(3)-1(e) Example 3, which states that the relative value of the lump sum is "Approximately the same value as the Life Annuity."

Responding to your 1., a reason to keep the 401(k) plan is that an employee's $15,500 elective deferral limit for the 401(k) plan is in addition to the employee's $15,500 contribution limit for the 457 plan.

one per payday

http://www.irs.gov/retirement/article/0,,id=96450,00.html

From IRS Notice 89-8: "Section 7503 of the Code provides that when the last day for performing any act prescribed under the authority of the internal revenue laws falls on a Saturday. Sunday or legal holiday, such act shall be considered timely if performed on the next succeeding day that is not a Saturday, Sunday or legal holiday. Rev. Rul. 83-116, 1983-2 C.B. 264, provides that section 7503 applies only to acts required to be performed in connection with the determination, collection or refund of taxes. Therefore, if the deadline for making plan amendments described in this notice is determined by reference to the filing of any return, then, under the rules of section 7503 and Rev. Rul. 83-116, if such deadline falls on a Saturday, Sunday or legal holiday, the amendments will be considered as timely made if made on or before the next succeeding day that is not a Saturday, Sunday or legal holiday. However, if the deadline for making plan amendments is determined by reference to the end of the plan year, then plan amendments must be made by that deadline regardless of whether it falls on a Saturday, Sunday or legal holiday."