Plan Aggregation: What Category for Voluntary Separation Pay Plans

[Guest BRich]

The regs provide various categories of plans that must be aggregated. There's a separate category for involuntary separation pay plans and window payments. However, it's not entirely clear which category voluntary separation pay plans should fall under.

The "catch all" category kind of seems like the correct category for voluntary separation pay plans, but it seems that the categories were created as carve-outs to a broader rule requiring aggregation. Does anyone know whether the IRS has taken a position on which category voluntary separation pay plans should fall under?

[namealreadyinuse]

Wouldn't they just be nondiscretionary account balance?

[Guest BRich]

Thought about that, but it doesn't fit squarely within the definition of account balance plan in §31.3121(v)(2)-1©(1)(ii)(A).

[Guest BRich]

Here's what I concluded:

Notice 2005-1, which provided the first plan aggregation rules, divided up the world into three categories: 1) account balance plans; 2) non-account balance plans; and 3) plans which are neither of these (i.e., other types of plans). Although we already knew this, the Notice goes a step further by offering as an example of such "other plans" discounted stock options, stock appreciation rights or other equity-based compensation described in § 31.3121(v)(2)-1(b)(4)(ii). The Proposed Regulations also note, albeit parenthetically, that these other types of plans are "generally equity based plans."

In addition, a strict reading of the Final Regulations (including the preamble) supports the notion that voluntary separation pay plans are non-account balance plans. For instance, page 252 of the Final Regulations defines non-account balance plans by reference to §31.3121(v)(2)-1©(2)(i). That regulation states that anything that is not an account balance plan is a non-account balance plan.

Coinciding with that definition, page 251 of the Final Regulations defines account balance plans by reference to §31.3121(v)(2)-1©(1)(ii)(A). This regulation states that an account balance plan is a "nonqualified deferred compensation plan under the terms of which a principal amount (or amounts) is credited to an individual account for an employee, the income attributable to each principal amount is credited (or debited) to the individual account, and the benefits payable to the employee are based solely on the balance credited to the individual account." As previously discussed, our voluntary separation pay plan does not fit squarely within this prescribed definition.

Since the voluntary separation pay plan we're dealing with does not provide discounted stock options, stock appreciation rights or other equity-based compensation described in § 31.3121(v)(2)-1(b)(4)(ii), and because it does not fit squarely within the definition of "account balance plan," the plan is most likely a non-account balance plan.

BRich