dv13

Plan sponsor is using the default under 409A for determining specified employees. With respect to participants hired midyear, for purposes of calculating compensation for a specified employee, does the plan sponsor consider the actual amount paid (i.e. W-2 income) or does the plan sponsor take the compensation at year end and convert this to an annualized number?

I appreciate your comments. My office has had a lively internal discussion on both of these Plan provisions and whether or not to remove one of them, revise both of them, etc. Your comments will help us choose which path to take. Have a great week!

This is the actual provision in the Plan. Does your answer change? Permissible Acceleration Events. Except as specifically permitted herein or in other sections of this Plan, no acceleration of the time or schedule of any payment may be made hereunder. Notwithstanding the foregoing, the Plan Administrator, in its sole discretion (without any direct or indirect election on the part of any Participant), may accelerate payment of all or a portion of a Participant’s vested Account Balance in accordance with the provisions of Treasury Regulations §1.409A-3(j)(4) and any subsequent guidance issued by the United States Treasury Department. Accordingly, payments may be accelerated, in the following circumstances: (a) Domestic Relations Orders. The Plan Administrator may accelerate payment of a Participant's vested Account Balance to the extent necessary to comply with a domestic relations order (as defined in Section 414(p)(1)(B) of the Code).

Respectfully disagree. I merely want to know thoughts on whether these two provisions conflict with one another if in the same document. Thanks.

§1.409A-3(j)(4) allows for the acceleration of Plan payment to the extent necessary to comply with a domestic relations order. Let's say the document contains this acceleration provision but also contains the nonassignability provision below -- do you see a conflict? Or am I correct in thinking that the distinction lies between one provision referring to payment and the other provision referring to assignment? Your thoughts, please. Thank you. Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, alienate, or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part hereof, which are, and all rights to, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment, or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency, or be transferable to a spouse as a result of a property settlement or otherwise. If a Participant, Beneficiary, or successor in interest is adjudicated bankrupt or purports to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber transfer, hypothecate, alienate, or convey in advance of actual receipt, the amount, if any, payable hereunder, or any part thereof, the Plan Administrator, in its discretion, may cancel such distribution or payment (or any part thereof) to or for the benefit of such Participant, Beneficiary, or successor in interest in such manner as the Plan Administrator shall direct.