ReallyChill

My two cents: One caveat to the "termination" response: the definition of "employer" in the "must terminate all similar plans of employer" means all plans of all employers in the entire controlled group. We've had situations where this detail prevented a sister company from terminating its NQDC plans. That said, even if you can "terminate" the NQDC plan, holding any promise to pay an individual in a future year is still a deferred compensation agreement, probably subject to 409A. I believe that's why a distribution is required under the plan termination provision. I think the taxable amount would only be the current value of the annuity when distributed, so the participant would have basis in future distributions, but that's not particularly helpful if he/she doesn't want a distribution at all. Now, if you just want to get rid of the annuity contract, that's just the funding mechanism. If it's held in a rabbi trust that's revocable, or that doesn't contain the "no payments until all liabilities to participants are satisfied," then the annuity contract could probably be cashed in, but that wouldn't relieve the employer of responsibility for administering the plan and likely causes other issues, primarily benefit calculations if the plan measures them based on participant selections of specific hypothetical investments. Bottom line: without a distribution, you freeze, you don't terminate.

Two points: under the PPP Flexibility Act of 2020, which was signed into law last Friday, your client has a much longer time to spend the money (24 weeks rather than 8 weeks) and in fact the longer period is the default unless the client acts to elect the shorter one, and the 75% compensation threshold for forgiveness has dropped to 60%, so your client may not in fact have extra unused funds now to worry about. Second - I am concerned with your comment on "prefunding" the PPP money. The PPP rules do clearly include benefits as part of the compensation issue, and there's been argument in our offices about whether the expense must both be incurred and paid during the "forgiveness" period. For example, a discretionary matching contribution for 2019 deferrals doesn't create a legal obligation until the company determines whether it will, in fact, make the contribution and how much that will be, while a safe harbor 3% non-elective for 2019 was incurred when the participants were vested in the contribution, though the deadline for payment (for a calendar year plan) is later this year. I've not updated that research, so this guidance may have been issued already; but if not, until we have guidance that clarifies the "both incurred and paid" issue, I'd proceed with caution. Pre-funding in general is frowned upon for tax reasons, but I think could be problematic in the PPP context as well.

It'll be interesting to see whether the Supreme Court's decision in Thole, which denied Article III standing to plaintiffs who did not allege individual economic harm, will reduce the fiduciary risk inherent in "effective" in this and similar rules. Courts may now require plaintiffs (and the DoL!) to show that they were economically harmed by a failure to show that the employer breached its fiduciary duty by not ensuring "effective" communication to press claims.