SERP offset under 2007 transition rules

[Guest jfsinger]

Employer is considering establishing a secular trust to be funded over future years beginning after 1/1/2008. The amount and time of contributions to the secular trust are uncertain today. The benefits accruing in this trust would offset benefits otherwise payable by a pre-409A SERP plan. There is no desire to maintain grandfathered status of the SERP plan. Question: Could the employer take advantage of the 2007 transition rules allowing a change in the time or form of payment by amending the SERP plan by 12/31/2007 to offset SERP benefits by the benefits accruing in the secular trust, even if the time and form of the future payments from the secular trust are uncertain at the time? Stated differently, do the exact time and form of the "new distribution elections" have to be set in 2007, or can they be determined at a later date?

The employer wants to get SERP liabilities off the balance sheet with tax-deductible payments and provide benefit security to the participants, but wants the flexibility to fund benefits if and when it makes sense from a corporate tax and cash flow perspective, without violating the 409A prohibition on acceleration of benefts.

Joe

[Guest EXB 1]

Based on my understanding, the election for the form of payment must be made by 12/31/2007 and there is no way around this. As to the timing of payments, the plan document should be updated to reflect the timing of payments based on certain events such as retirement, termination, ect. The main purpose of 409(A) is to remove discretion as to the timing and form of payments.

[Steelerfan]

Since it's too late to cancel a plan at this late juncture, it doesn't look like you can do what you suggest. It seems the offset plan should comply with 409A even though it is a secular trust and amounts contributed are immediately taxable.

There is a section in the preamble to the regulations that addresses offsets.

[Steelerfan]

I would also add that not only should the time and form of payment be set by the end of 2007, but that you also take into consideration any consequences due to the possible application of the constructive receipt rule. For example, some practitioners feel that if you wait until the very end of 2007 to defer payments that were due in 2008, CR might occur in 2008.