409A Termination of Employment

[Guest Ekaplan]

I have a client whose executives typically enter into consulting arrangements after retiring from the company in order to provide additional services. The company has a non-grandfathered deferred compensation plan. Because of the consulting arrangements and the amount of service and compensation that is often associated with these arrangements, we have been struggling through understanding the Separation from Service/Termination of Employment guidance provided in the proposed 409A regs (specifically Prop. Reg. § 1.409A-1(h)(1)). My question has to do with the 20% and 50% tests. I am reading these as meaning that the services provided AFTER the purported termination of employment must, on an ANNUALIZED basis meet the thresholds. However, given the meager amount of guidance available and the lack of an example, would really appreciate someone else's thoughts on my reading of this provision.

[Kirk Maldonado]

If you don't think that the proposed regulations provide enough detail, your best strategy in the long run would be to submit a comment to the IRS asking them to add more detail on this issue in the final regulations.

That would seem to be infinitely more valuable than getting the perspective of the other people on the Message Boards.