Plan Aggregation Upon Termination of Participation

[Guest justbetmd]

If a Company allows a participant in a non-qualified deferral plan to terminate participation in that plan and take his account balance into income by december 31, 2005 can that same participant CONTINUE his participation in the Company's SERP? Can a participant who terminates participation under the Company's non-qualified deferral plan on December 31, 2005 - participate in a new company deferral plan for the 2006 plan year. In other words -- does the transition relief give participants a pass on the five year restriction (i.e. can't participate in another deferred comp plan for five years). Thoughts? Is this set out anywhere in the guidance?

[JDuns]

Notice 2005-1 Q&A 20(a) allows termination of participation to "be made with respect to elective or nonelective deferred compensation and may be undertaken by the service recipient or at the election of the participant. A termination or cancellation under this paragraph may apply in whole or in part to one or more plans in which a participant participates and to one or more outstanding deferral elections the participant has made with regard to amounts subject to 409A."

This is different than the post 2005 plan termination provisions in the proposed regulations.

So, yes, the employer could allow a participant (1) to terminate participation in the deferred comp plan without terminating SERP participation, (2) to terminate pre 2006 deferrals in the DC plan while allowing future DC plan deferrals, and (3) there is no terminate both the SERP and DC for all participants and wait 5 years requirement.

[Randy Watson]

Right, the transition relief (contained in Notice 2005-1 and the preamble) is separate and apart from the anti-acceleration rules in the regulations.