June 30, 2005 election

[Guest Mrilaomt]

We are contemplating adding a SERP for one of our outstanding sales people - does anyone know if we need him to sign the election by June 30, 2005 for this type of arrangement (not set up as a bonus arrangement)?

[Guest tintree73]

It is my understanding that under IRS Notice 2005-1, a bonus is a performance-based bonus if both of the following are met: (a) the amount or payment of the compensation is contingent on the satisfaction of organization or individual performance criteria; and (b) the performance criteria are not substantially certain to be met at the time a deferral election is allowed.

I believe there is also a requirement that the performance-based compensation must (generally) be based on objective performance criteria but may include payments on subjective criteria if (i) the criteria related to the performance of the service provider, a group of providers that includes the service provider or a business unit for which the individual provides services and (ii) the determination may not be made by the service provider or a family member of the service provider.

. . . but I am no expert on this

[JDuns]

By now you have probably taken action if you were worried (since it is after 6/30) but the answer is that the 30 day rule for newly eligible employees applies and that an election for any compensation that would be earned after the election date (base comp or bonus) is permissible.

[TCWalker]

SERP? Election? Didn't you mean to say a non-qualified compensation deferral plan? (A SERP is more often the label for a non-elective plan.)

Ongoing, pay attention to the fiscal year of the employer and the timing of the participant's deferral election.