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  1. I was wondering if anyone had direct experience or could point to guidance on an acceleration of payment/acceleration of vesting question. The regulations clearly permit an acceleration of vesting (Treas. Reg. 1.409A-2(j)(1)). For example, if an amount of deferred compensation vests after ten years and is payable upon a separation from service, it is not a violation for the service recipient to reduce the vesting requirement to five years, even if a service provider receives a payment in connection with a separation from service before the initial ten year period. What if the payment provision provided that a service provider would receive a payment of deferred compensation upon a separation from service that occurs after the participant reaches age sixty. Would an amendment to the Plan that provides a payment upon a separation from service at age 55 be compliant under the above reference provision (i.e. changing a condition constituting a substantial risk of forfeiture), or would it be considered an acceleration of a payment. The effect appears to be the same, but does the condition being in the payment event provision rather than a vesting provision change the nature of the amendment. Curious to hear what everyone thinks, or whether it is clearly answered anywhere.
  2. Bank executives have employment agreements that allow 2 times pay as severance for voluntary separation from service within one year after a Change in Control defined by reference to 409A definition of Change in Control Event. Bank wants to incorporate a Holding Company and do a statutory share exchange where all of the Bank shareholders exchange their Bank common stock shares for Holding Company shares, leaving Holding Company as owner of all shares of Bank common stock, and Holding Company will then have same shareholders that Bank had before the transaction. No Bank shareholder is related by attribution rules of 318(a) to any other Bank shareholder. No Bank shareholder owns more than 30% of the outstanding shares of Bank. Bank has asked if this is a Change in Control Event under 409A, for purposes of the employment agreements of the Bank executives. After this transaction, if one of the Bank Executives leaves voluntarily, would he or she be entitled to the severance pay under his or her employment agreement? I know this shouldn't be a 409A Change in Control Event, as nothing has "really" changed, but I'm having trouble pinning down why in the regs under 1.409A-3(i)(5)(v), (vi) and (vii). Even if the shareholders of Bank are treated as acting as a group, (because they are involved in an acquisition of shares involving the corporation they all own) the Holding Company is a separate "person" and as an entity it does acquire more than 50% of the voting stock of the Bank in the transaction. After the transaction, the 318(a) attribution rules don't help with respect to the original shareholders, with respect to Bank stock or Holding Company stock, as none of them own more than 50% of the Bank stock or the Holding Company Stock before or after the transaction, and the attribution rules of 318(a) measure stock ownership of each shareholder even if they are "persons acting as a group" for other purposes. Also, since the Bank stock will remain outstanding after the transaction, the exclusion from the definition of Change in Control of 'transfers to a related party' of 1.409A-3(i)(5)(vii) respecting Change in Ownership of a Substantial Portion of Assets does not apply the way it might in a merger where the stock of the target does not remain outstanding after the transaction. Can anyone point to the regulation under 1.409A-3(i)5(v), (vi) and/or (viii) that excludes this transaction from the definition of Change in Control Event under 409A?
  3. Large nonprofit health systems are being approached frequently by consultants offering proposal to rescind executives 409A/457(f) SERPs in direct exchange for split dollar loan regime arrangement of substantially equal value (but generally a very different "payment" time/form than under the 409A/457(f) SERP). Push for these proposals now seems to be to help nonprofit employer avoid or reduce 4960 excise taxes where these SERP values would exceed $1M at vesting. Anybody seeing these along with the legal opinions from the promoters that these "swaps" "should not" run afoul of 409A or 457(f)?? Thoughts on whether this violates anti-substitution/anti-exchange rules under 409A/457(f) and if not - why? If an executive and employer bilaterally agreed to cancel SERP in exchange for loan regime split dollar arrangement, should executive insist on indemnification from employer for potential 409A/457(f) infractions/penalties if the promoter's "should be ok" doesn't ultimately align with IRS views on audit - or even at Tax Court? I appreciate any insight as to how these proposals are being greeted by employer's counsel.
  4. Not sure which message board to post this. Client is purchasing life insurance [contractual protection insurance?] from a Lloyds specialty broker to provide coverage to key executives above what is available in group plan. Client will be owner and pay premiums, but executive will be able to name beneficiary. Can the client impute income to executives based on Table I rates, and then the benefits paid would be received tax free? Or does the full premium amount need to be included as taxable income like a 162 bonus plan? Or will death proceeds be taxable to estate, or as income in respect of a decedent, or taxable to the beneficiary?
  5. Employer has an NQDC plan in the form of "appreciation units." Executive wants any payments under the plan to be paid to a trust, of which he and his wife are the trustees, instead of to him directly. My understanding is this does not avoid taxation for him, but he wants the trust to hold all of his assets. Plan currently does not permit the assignment of rights under the plan. My question is this: Does amending the plan to allow a participant to assign his/her right to payment to a trust present problems under 409A? Any right to payment is still subject to forfeiture. Any thoughts on this would be much appreciated.
  6. I'm working with a stock option that is currently a short term deferral because the option only vests upon a CIC. The client now wants to add termination of employment (except for cause) as a payment event. I am pretty sure the subsequent deferral election rules apply here, but the result seems impractical when using the possible CIC as the original payment date. I also see a problem with the prohibition against acceleration of payment, because of course, an employee could terminate before the CIC date. Thoughts??
  7. 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!
  8. Is compensation that complies with Sec 409A eligible for 401k deferrals?
  9. 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.
  10. I'm reviewing a deferred compensation program that has the pay-out based upon the value of the service recipient's stock. There are several 409A permissible payment triggering events (separation from service, disability, change in control). In the payout section, it says that upon a triggering event, 1/3 of the deferred comp will be paid out over each of the next three years. Then, there is a provision that says in the case of a Change in Control, if the terms of the payout for the shareholders under the CIC are more favorable than the standard payout above, then the payout will occur in accordance with the terms applicable to the shareholders in general. 1.409A-3(i)(5)(iv) says: "Payments of compensation related to a change in control event...that occur because...the service recipient or a third party purchases a stock right held by a service provider, or that are calculated by reference to the value of stock of the service recipient (collectively, transaction-based compensation), may be treated as paid at a designated date or pursuant to a payment schedule that complies with the requirements of section 409A if the transaction-based compensation is paid on the same schedule and under the same terms and conditions as apply to payments to shareholders generally with respect to stock of the service recipient pursuant to a change in control event...." I don't see this as an impermissible toggle - there is only one payout schedule in the case of a CIC- in accordance with the terms of the general shareholders agreement if they are more favorable than the standard terms; otherwise the standard terms apply. Does that interpretation seem reasonable, or am I way off base?
  11. I have a client who would like to adopt a nonqualified plan that will act to allow highly compensated employees to defer an amount equal to the excess contribution refund that the employee will receive from the employer's qualified 401(k) when the plan fails its ADP/ACP testing. I understand that 409A requires that the employee make an irrevocable election to defer compensation on or before the last day of the year prior to the year during which compensation is earned. Under the contemplated nonqualified plan, the amount deferred under the nonqualified plan would only be equal to the amount that the employee receives as a refund from the 401(k) plan. However, the deferral would be taken from current year wages and the refund would be refunded to the participant and reported on Form 1099-R. Does anyone know if it is acceptble under 409A to allow the highly compensated employee defer an amount equal to the refunded excess contribution on or before December 31 (the last day of the prior service year) when the employee does not yet know who much the excess contribution refund will be? I guess I am concerned that the dollar amount of the election is not certain at the time the deferral is made. On the other hand, if the deferral is equal to 100% of some formula/amount, then this seems like a "determinable amount". Any direction would be greatly apprecaited! Thanks!
  12. We are amending our plan to allow unforeseeable emergencies as permissible payments. Does anyone happen to know whether, after the amendment, a participant can withdraw amounts from before the amendment? Or does the amendment only allow payments of amounts deferred after the amendment? Does it matter if the emergency occurred before or after the amendment? Any guidance would be greatly appreciated. Thanks.
  13. Assume a non 5% shareholder has started to receive MRD payments from a Plan and is nonger an active employee of Company A. Participant decides to go back to work for company B and has made deferrals.to the Plan but an MRD is not required. If this person rolls over his account from Plan A after receiving his MRD for the current year, will this allow a suspension of his MRD's from his old account in future years while still employed?
  14. I'm having a disagreement with a colleague about a proposed 409A design and wanted some feedback from the forums. Background A private equity firm has proposed a "phantom carry" plan for its non-partner employees. The firm creates funds which invest in companies over the course of, for example, 15 years. Periodically, the fund will pay earnings of those companies out to investors. The payment of these earnings is "carry." Proposed Plan Design An employee is granted a phantom ownership interest in a specified fund managed by the partnership. As with phantom stock, this is not an actual ownership interest and does not dilute the ownership interests of actual owners. Rather, each time the fund pays carry to its investors, the firm pays an amount to the employee equal to what the carry payment would have been for that employee had their ownership interest been real. The firm would pay cash in the next semi-monthly payroll cycle, and there would be no further deferral. The employee's entitlement extends for the life of the fund; potentially beyond termination of employment. Is there Deferred Compensation? As a threshold question, we must ask if there was any deferred comp. When are the amounts earned. If the employee is entitled to nothing until the payment of carry, then there would be no deferred comp as amounts are paid out immediately thereafter. However, if we say that it's the grant of the phantom carry rights that creates the entitlement, then subsequent payment of benefits for years down the road would certainly be deferred compensation subject to 409A. I think we're OK on our end saying it's the latter, but wanted to float this in case anybody felt strongly that there was no deferred comp. Is the Payment Scheme 409A-compliant? Alternate Arguments: No, it is not compliant. In this case, the payment of carry out of the fund triggers payment of NQDC to the participant. Such an event is not a permissible distribution event under 409A. Yes, it is compliant. Each semi-monthly payroll cycle is a stated date, which is a permissible distribution event under 409A. On most of these dates, there is a zero balance in the account, thus no distribution. Following each payment of carry, the NQDC account has a balance which survives only until the next scheduled distribution date (the semi-monthly payroll). Any thoughts/feedback? Thanks.
  15. If an employer agrees to provide employees a flat % of their sales revenue as a commission to be paid in the following year, is that arrangement subject to 409A?
  16. Guest

    Plan termination

    In the case of a plan termination, is it a requirement that the plan agreement provide (in writing) the right to terminate the plan, or is it enough that we follow the procedures for discretionary termination by the employer? If someone has an answer, can you direct me to where to look in the code? Thanks
  17. Does anyone else take the position that, based on Notice 2005-1, Q & A 7, and the absence of subsequent guidance, that equity incentive plans of LLCs can be treated in the same manner as stock appreciation rights plans for purposes of the exemption under 409A, provided the requirements for SARs are otherwise met? Any reference to guidance would be greatly appreciated.
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