IPO

[Guest Guy Incognito]

Is it permissible to designate that payment be made upon the occurrence of an IPO?

Thx.

[Steelerfan]

Is it permissible to designate that payment be made upon the occurrence of an IPO?

Thx.

Only if payment is conditioned solely on the occurrence of an IPO (thus creating a substantial risk of forfeiture) and required to be paid within 2.5 months after the end of the year in which the IPO occured. IOW, you would not be able to have this as a payment event for deferred compensation, rather only for short term deferral.

[QDROphile]

Only if it occurs on your 65th birthday.

See Treas. Reg. section 1.409A-3(a).

[Steelerfan]

Only if it occurs on your 65th birthday.

See Treas. Reg. section 1.409A-3(a).

Wouldn't that be something!

[Guest JBauer]

Only if payment is conditioned solely on the occurrence of an IPO (thus creating a substantial risk of forfeiture) and required to be paid within 2.5 months after the end of the year in which the IPO occured. IOW, you would not be able to have this as a payment event for deferred compensation, rather only for short term deferral.

Re SROF, I can see the regs cover this circumstance, but what do you think about the following as creating a SROF? Employee who will be terminated by the end of the year will receive a specified payment by March 15, 2009 if unable to find replacement work as of 12/31/08. Want to avoid deferral using STD exception, but don't consider "vesting" condition to constitute a SROF under the regs.

Thoughts?

[Everett Moreland]

As to the initial question, see the following from the end of 1.409A-3(i)(1)(i):

"A plan may provide that a payment upon the lapse of a substantial risk of forfeiture is to be made in accordance with a fixed schedule that is objectively determinable based on the date the substantial risk of forfeiture lapses (disregarding any discretionary acceleration of the lapse of the substantial risk of forfeiture), provided that the schedule must be fixed on the date the time and form of payment are designated, and any change in the fixed schedule will constitute a change in the time and form of payment. For example, a plan that provides for a bonus payment subject to the condition that the service provider complete three years of service, and subject to the further condition that such requirement of continued services will lapse upon the occurrence of an initial public offering, which condition if applied alone would constitute a substantial risk of forfeiture, may provide that a service provider is entitled to substantially equal payments on each of the first three anniversaries of the date the substantial risk of forfeiture lapses (the earlier of three years of service or the date of an initial public offering)."

[Steelerfan]

Re SROF, I can see the regs cover this circumstance, but what do you think about the following as creating a SROF? Employee who will be terminated by the end of the year will receive a specified payment by March 15, 2009 if unable to find replacement work as of 12/31/08. Want to avoid deferral using STD exception, but don't consider "vesting" condition to constitute a SROF under the regs.

Thoughts?

Not good. The condition is controlled by employee and unrelated to the performance of services for the employer.

[Guest JBauer]

Steelerfan, that is what I was concerned about. Thanks for the response.

To me this seems analogous to a non-compete, because both are within the employee's discretion. So assuming can't avoid 409A, payment to be made at a fixed time, with entitlement contingent on whether employee has found replacement work.