Termination Notice & Years of Service = Substantial Risk of Forfei

[Guest jpetrancosta]

We currently have a non-qualified deferred compensation plan for the executives of a non-profit. The plan stipulates that the employee must work until age sixty-five to earn the deferred comp benefit. Since many of the executives have 20 - 25 years before that age, they are looking for a better deal.

Q1: Can we combine a termination notice with a vesting requirement and still have substantial risk of forfeiture.

Ex. If the vesting requirement is stated as a minimum of six years - any five years plus one year of service after a termination notice is given, and the executive works for 20 years, gives notice of retirement and works his last year, can the executive defer taxation of the deferred comp benefit until the last year.

Q2: Does the answer change if the service requirement after notice of termination is lengthened? If so, how short can the period be?

Any other ideas are greatly appreciated.

[Guest jpetrancosta]

Please let me know if there is any additional information I need to provide.

[Kirk Maldonado]

Q1. I've never heard of such an arrangement, even though I've worked in the area of benefits for almost 25 years. Thus, I doubt that there is any definitive guidance on this point.

That being said, I think that it would work because it is virtually the same as electing to receive deferred compensation benefits where termination of employment is not required. However, I'd be interested in hearing the views of others.

Q2. You wouldn't want the person to be able to elect to receive the payments in the same calendar year in which the person gives the termination notice, or you would violate the constructive receipt rules.

[Guest jpetrancosta]

Thank you. I searched our firms entire resource network and did not find much guidance.