Specified Employees and Severance Payments

[Guest ohioattorney]

I wanted to see if anyone had an opinion on the following:

Company is publicly traded now but has been purchased and will become a private company on X date. CEO has an employment agreement that says severance payment will be paid in the event of a change in control and that CEO terminates employment. Under the agreement CEO would get the severance if he was terminated in connection with the change in control or he terminated for good cause such as duties and position changed. In this situation CEO was not terminated but could have terminated under the good cause provision.

Attorneys for the purchaser want to pay the severance payment. They are relying on the transition rule in the proposed regulations entitled "Change in payment elections or conditions on or before December 31, 2006". [i know this was extended to 2007]. The attorneys for the purchaser are interpreting the rule to mean that you can change the provisions of the plan at any time during the transition period.

I was asked the following questions:

1. Would the 6 month delay rule apply to this CEO--If he actually terminated after the company became private, I believe that the rule does not apply. The regulations say that whether a company is public is determined on the date of seperation from service.

2. Does the transition rule let the terms of the plan be changed such that no actual termination is required to get the severance payment. This is where I need real help.

Thanks

[Guest kodle]

I believe that the transition rule you cite does allow an employer to amend the plan to change the payment provisions of the plan during the transition period (now, until December 31, 2007), so long as the change does not result in a payment being made in the year of the change and does not result in a deferral of a payment due in the year of the change. So, the plan could be amended in 2006 to provide for a payment in 2007 or later so long as that payment was not originally due in 2006, or the plan could be amended in 2007 to provide for a payment in 2008 or later so long as that payment was not originally due in 2007. I recognize that the regulations and the transition rules refer to changes to "participant elections", but I believe that the employer can make unilateral amendments to a plan that does not allow participant elections. I would be interested if others have a different opinion.

[Just Me]

I agree with Kodle.

[namealreadyinuse]

Couldn't the plan just be terminated and paid in 2006 as well, or was this alternative not included in the transition relief?