Disability insurance and 409A

[Guest Penny17]

Are disability insurance policies issued by insurance companies and paid by employers treated as deferred compensation under Section 409A? These policies sometimes have a definition of “disability” which does not match 409A.

I’ve seen Sec. 1.409A-3(i)(4), but that seems to pertain to plans of an employer where payments would be made out of the general fund (or, in our most common situation, from receivables that come in after the onset of disability). I’ve also seen 1.409-1(a)(5) which excludes “disability pay” from the definition of nonqualified deferred compensation.(with the same meaning as in Sec. 31.3121(v)(2)-1(b)(4)(iv)©) but, quite frankly, I don’t understand 31.3121(etc.).

Please be kind – I’m a paralegal who does not want to be throwing together plans on Christmas Day.

[Everett Moreland]

My guess is that almost no employer-paid disability insurance policy is a nonqualified deferred compensation plan under Section 409A. To determine that you need to read and understand the policy, 1.409-1(a)(5), and 31.3121(v)(2)-1(b)(4)(iv)©. I sympathize with you about 31.3121(v)(2)-1(b)(4)(iv)©. It might win an award as the most tortuously abstruse tax regulation.