457(f) and 409A--what is a short term deferral?

[Guest Darrell]

If an exempt organization maintains a SERP for an executive and taxes him on his accrual for each year under Section 457(f), is the SERP subject to 409A? Is the SERP exempt from 409A as "short term deferral?" Q&A 4 of Notice 2005-1 defines a "short term deferral" as follows:

© Short-term deferrals. Until additional guidance is issued, a deferral of compensation does not occur if, absent an election to otherwise defer the payment to a later period, at all times the terms of the plan require payment by, and an amount is actually or constructively received by the service provider by, the later of (i) the date that is 2 1/2 months from the end of the service provider's first taxable year in which the amount is no longer subject to a substantial risk of forfeiture (as defined in Q&A 10) or (ii) the date that is 2 1/2 months from the end of the service recipient's first taxable year in which the amount is no longer subject to a substantial risk of forfeiture (as defined in Q&A 10).

The problem I am wrestling with stems from the words "at all times the terms of the plan require payment by,..." SERPs such as the one I describe typically link the distribution of the executive's SERP benefit to his/her distribution under the organization's qualified plan. Is it enough to constitute a "short term deferral" to tax the executive on his accrual for each year, or must the SERP actually pay out the benefit within 2 and 1/2 months after the end of the year in which it is accrued and not subject to a substantial risk of forfeiture?

Is there some other basis for advocating that such a SERP is not subject to 409A? The possibility of having the taxes owing each year on the accrual increased by 20% under 409A is not attractive, and it makes the gross up number completely unacceptable. Thanks for any input.

[E as in ERISA]

Can you try fitting it into (a) instead of © -- and say because it's taxed each year as accrued then it's not deferred? I thought that there was somewhere they made that clearer, but I don't see it now.