Multiple distribution benefit elections - lump sums or installments?

[Guest jfsinger]

In your opinion, could a deferred compensation participant make an election to defer 1 year's deferrals into multiple "buckets" (say, over 5 consecutive years beginning 2 years from now), and then re-defer the first year's distribution an additional 5 years while leaving the other 4 "buckets" intact?

The question turns on whether the service would consider the original distribution election as 5 individual lump sum payments, or as installments. We would intend it to be viewed as 5 individual lump sum payments.

409A(2)(A)(iv) says "a specified time (or pusuant to a fixed schedule) specified under the plan at the date of the deferral...."

Any thoughts?

Joe

[Mark Whitelaw]

Administratively, 409A hasn't changed the use of buckets/multiple deferral elections. In fact 409A has increased the buckets, requiring separate buckets each year, and is a NQDC administrator's dream legislation. Whether one does one election for 5% of pay for a specific payout date, or fills out five elections for 1% of pay each at five different payout dates doesn't matter--hasn't changed. The change is event driven buckets are gone.

We would hope/think IRS will takes a bucket perspective. Take a person age 50 deferring annually for 15 years wanting lump sum payout at age 65. Rather than have a single bucket that pays at age 65, that person will now have 15 buckets/accounts. If an adminstrative error violates 409A in one bucket, I would hope the other 14 that were administered properly would not be affected.

[Guest George Chimento]

Mark,

If one of the buckets in a plan is "tainted", all of the participant's deferrals in the plan (and similar plans) have a problem.

The Statute's approach is not to let sponsors circumvent the rules by creating multiple plans, so multiple buckets in the same plan would clearly not insulate your participant.

George

[mbozek]

After reading the definition of separate account plan plan in Q/A-9 of the notice I cant tell whether plan includes all separate plans of deferred comp for an employee of an employer or all comp deferred under a single plan as defined in the FICA regs (" all comp deferred ....under an account balance plan as defined in the FICA regs is treated as defined under a single plan") The FICA regs define a single account balance plan as the crediting of a principal amount to an individual's account under the terms of the plan, income attributed to the principal amount is credited to the individual's account and benefits are payable solely on the account balance credited to the individual's account.