Sale of Business as Distribution Trigger

[Christine Roberts]

What are conditions imposed on a NQ deferred comp. plan if the sale of the sponsor's business is an event triggering distribution?

[Guest EAKarno]

If the participants have the ability to take a distribution following the sale without substantial limitation or restriction, then they would be in constructive receipt of such distribution whether they actually take one or not. However, if prior to the sale a participant and management came to a bilateral agreement to extend the deferral period for legitimate business purposes, then constructive receipt is likely avoided.

[Kirk Maldonado]

EAKarno:

Are you concerned if the extension occurs shortly before the deal becomes effective, or do you think that the bilateral nature of the extension avoids any timing concerns?

[Guest EAKarno]

So long as the agreement is made before the participant has the right to actually demand payment, the Veit decisions certainly would seem to support a bona fide bilateral business decision -- as opposed to a mere sham -- to extend the deferral period even if made at the 11th hour. Under the circumstances given here, it would not be difficult to demonstrate a bona fide business decision rather than a sham as the reason for the extended deferral.

[Christine Roberts]

Gentlemen, thank you for your comments. To take matters slightly off-topic, would a participant's ability, with the employer's mutual consent, to modify the definition of "normal retirement" (which is also a trigger event), cause constructive receipt? From EAKarno's second post it would seem to be OK (i.e., no constructive receipt) if the parties agree to the changed definition before the participant reaches normal retirement age as originally defined under the plan.