dv13

409A account balance plan that says payment may be made in cash or in-kind. The plan is informally funded with COLI and payment is to be made in a lump sum. If the plan sponsor transfers the COLI policy to the participant as payment, is there an issue? I couldn't find anything in the Regs that prohibits this.

How long must a TPA of NQDC plans retain records for a terminated client? Is 7 years the norm? Can it be a shorter time period? What are general guidelines typically followed by other TPA firms for records retention related to NQDC plans and terminated clients?

This may not be the most appropriate board to post the message, but I'll roll the dice. I cannot find anything specific on this topc. Even the regulations on 401(k) hardship documentation do not actually state what length of time the plan sponsor must keep these records - just that it must. Does that mean there is no time frame and records are to be kept indefinitely? Or would 7 years be sufficient? What my client really wants to know is what is the shortest amount of time that these records must be kept?

Yes, guaranteed payments as defined in IRC Section 707. I do not know the "why." I only know that the client is asking to do it. Would such a deferral follow the election rules of performance-based compensation? Thank you for the responses.

Has anyone seen this? What election rules apply to such a deferral? What are the pros and cons of the plan allowing this?

I have the same question as Degrand. Is it a mandatory requirement that deferrals under a nonqualified plan be cancelled due to the safe harbor standard of a 401(k) hardship distribution? The 401(k) rules indicate that deferrals under all plans of the employer must stop, but 1.409-3(j)(4)(viii) says ". . . a service provider's deferral election may canceled due to an unforeseeable emergency or hardship distribution pursuant to 1.401(k)-1(d)(3)."

I know very little about subchapter T cooperatives, but perceive them not to be tax exempt entities, and therefore not subject to 457(f)? Do you agree/disagree? I appreciate any feedback.

I agree that the plan can continue and anything deferred after the change in control would be as if it is being put into a post-CIC bucket, where the plan sponsor could even change the plan design prospectively for the post-CIC dollars.

We've mainly seen plan sponsors choosing to adopt the new claims procedure rather than amend the disability definition. As a TPA, we are not recommending one course of action over another, but deferring to their advisors. Having the SSA make the determination has its own disadvantages.

Is there a regulation that defines "base salary" for purposes of a 409A elective account balance plan? I typically use a definition in my plan docs that describes what is versus what is not considered base salary, but I'm working with a takeover plan where the doc does not define base salary. The client continues to have fluctuations in contribution amounts due to PTO donations. They have always considered PTO as part of base salary. Is there any 409A standard definition or some other basis for me to look to? Thanks.

I am confident that nonqualified top hat plans will need to address the final rule, specifically when disability is a payment trigger; however, is the rule applicable if disability only accelerates vesting and is not a payment trigger? Would seem so, but I'm not certain. What if the plan only contains disability respective to the cancellation of a deferral election? Would the rule apply here as well? Thoughts are greatly appreciated. Thanks!

How do you interpret 1.409A-1(h)(2)(ii)? Does it require that a distribution from a 409A plan to an independent contractor be delayed for 12 months from the date of the expiration of the contract(s)?

Yes, The Pangburn Group. Our expertise is nonqualified plans using COLI or BOLI, typically for small to medium sized companies/banks. http://www.pangburngroup.com

Other than through a rabbi trust, is there any way a company can be prohibited from using their nonqualified plan assets as collateral for loans? I'm not aware of any. Does non-assignment play into this?

NQDC plan benefit is a percentage of the employee's annual compensation. In 2015, as a result of a 27th pay period, Employer ended up paying him more than it has in 2014 and prior years. In 2016, they will adjust what they plan on paying him, in order to account for the extra payment in 2015. In 2017, they will be back on schedule to pay 26 pay periods for the same total as he was given in 2014 and prior years. Is this an impermissible acceleration in 2015 and potential under payment in 2016? If so, is there an exception under 409A that the company can use? Do you have any other suggestions for how the company could handle the extra payroll/payment and subsequent adjustment?

Privately held corporation with stock split between the company, a father and a son as owners. Non-familial COO and CFO. Company is discussing options for a succession plan in the event both shareholders die. They are considering using an endorsement split dollar arrangement on the life of the shareholders with key employees (COO and CFO) listed as beneficiaries as a way to fund the key employees' purchase of the deceased shareholder's stock. Another option would be to bonus out shares of stock to those key employees. Any thoughts on using split dollar versus bonusing shares?

A participant in a nonqualified (409A) plan is going through a divorce. Plan doc clearly states that benefits are not transferable, cannot be assigned, etc. Participant is wondering if he can draft a separate agreement with his soon-to-be ex-wife where his Deferred Comp Account would be divided into two, both still in his name, but essentially one for him and one for his wife. (1) I'm pretty sure that doing so would be a violation of the Plan and (2) he will be taxed for all of it upon distribution. So, has anyone seen this done before or do you have any other creative alternatives for the divorce settlement in this scenario?

Thank you so much for the input!

We are the TPA. We have not tried to search for the beneficiary at all. Our client is saying that they have attempted to find one and have not been able to and are tired of looking. We have directed the client to their own legal counsel, but I thought the topic was interesting enough to see what options may exist for this scenario.

This is a 409A plan document and it has been searched thoroughly for instruction regarding the inability to locate a beneficiary with no success. It is an individual agreement, not a master with adoption agreement. The only statement even close to fitting the situation is that "if the participant did not designate a beneficiary then the death benefit shall be paid to the participant's estate." Assuming I can apply this to the situation of not being able to locate a designated beneficiary, the death happened over 2 years ago. For purposes of answering my initial questions, let's assume the doc is silent on the issue and the estate is closed. Now what? The company is tired of looking for the beneficiary and wants to know what to do with the payment owed. There are concerns about a delay in payout under 409A, as well as a question of whether the plan sponsor can keep the money (after a certain period of time . . . 3 years?).

Participant is deceased as of 2013. Beneficiary cannot be located. The plan document does not have any language about what happens in this instance. I've seen docs give a 3-year window for the plan sponsor to retain the payment obligation, but I'm not sure if there's a compliance reason for that. Does state law dictate this situation? Can the plan be amended to include language now? What is the proper way to handle this? Does the client report this as 'paid' to the IRS at some point? Thanks!

I see what you're saying. My confusion hinged on my considering the shares to be assets. Thanks for the replies.

Plan only provides for one of the 409A CIC options: a "change in ownership of a substantial portion of corporate assets." Under the Regs this means the date on which a person or group of people acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by that person or group of people) assets from the corporation that have a total gross FMV equal to or more than 40% of the total gross FMV of all assets of the corporation immediately before such acquisition. Under the terms of their plan, CIC accelerates vesting and is also a payment trigger. A 58% owner wants to leave the company in 2 years and have the other owners absorb his 58%. If the 58% owner transferred half (29%) in one 12-month period and the remaining half (29%) in the subsequent 12-month period, does it circumvent the CIC trigger? Company does not want the transfer from the 58% owner to trigger a CIC.

A strict compliance with the plan terms would seem to dictate that the EE needs to be paid, regardless of the theft of funds. If the ER does not pay him, it would fall under an operational violation of 409A; however, the associated penalties are only imposed on the EE. I suppose the EE could file a claim and/or lawsuit for the money, but that wouldn't be too smart since the ER could likely file criminal charges. So, appears that maybe there is minimal recourse against the ER for withholding payment in this case. Am I completely off-base?

Company recently terminated an employee for embezzlement who was 100% vested in his Account (all employer money) The plan document (a nonqualified deferred compensation plan) does not contain any forfeiture for cause provisions. ER does not want to pay. Are there any repurcussions for not paying - from a 409A perspective or otherwise? Any case law similar to this scenario? What do you see as a potential solution for this ER?