Participant Discretion Over Timing And Amount of Distribution

[Christine Roberts]

Top-hat NQDeferred comp. plan allows participants to elect to defer a bonus prior to 12/31 each year, and also allows them to designate the distribution date, and the size of distribution (e.g., $20,000 distribution may be made in two installments of $10,000 each).

These distributions may occur during employment; i.e., plan does not restrict distributions to death, disability, retirement or other termination of employment.

Is this arrangement permissible (i.e. it avoids constructive receipt) so long as "haircut" penalty is imposed on in-service distributions? Is "haircut" penalty necessary to avoid constructive receipt?

Any and all comments appreciated.

[mbozek]

There is no CR if the election date/form for the distribution is made prior to the time the compensation is deferred. A haircut or penalty is required to avoid CR only if the participant may elect a distribution withhout approval by the independent plan admin. after the amount has been deferred.