New NQDC plan - election to defer bonuses

[Guest benefitsanalyst]

We are implementing a brand new NQDC Plan (we don't have an existing plan) which will be effective 1/1/06. Does anyone have any opinions on whether we can allow participants to elect to defer bonus payments for performance period ending 12/31/05 (paid in March 2006)?

I understand that the new regs require bonus deferral elections to be made 6 months prior to the end of the performance period. But, would this apply to a new plan?

[JDuns]

A new participant may make elections within 30 days and by definition all of the employees would be new participants.

However, there is no guidance on the interaction between the new participant election and the performance based bonus election periods. I have heard "experts" assert with equal confidence that (1) no deferral election may be made within the 6 month window, (2) a deferral election may be made so long as it is within the 30 day window (even if that happens shortly before the benefit would be payable), (3) the participant may elect to defer a pro-rated portion of the bonus.

Until there is guidance, we are all just speculating. (Personally, I think option 3 puts the plan in a very defensible position.) I just can't wait until 409A guidance is finally released.

Good luck.

[mbozek]

Can an employee defer a bonus which is earned in 2005 under a plan that is not established until 1/1/06. A Q plan must be adopted by the end of the tax yr in order to make deductible contributions for that yr. Is there a similar requirement for NQDC under 409A? Or is the employee a cash basis taxpayer who can defer any comp paid in 06 rgardless of when earned?