Identifying Specified Employees

[Guest Grumpy456]

Well now I've really lost what was left of my mind.

Company A is a publically-traded company and implements a NQDC plan for Sarah (a key employee as defined by Code Sec. 416). Company A goes private and continues to sponsor the NQDC plan for Sarah. At some point thereafter, a distributable event occurs and Sarah wants her dough. Is Sarah a "specified employee" for purposes of the 6 month delay in distribution rule?

The final regulations clarify that “[t]he term specified employee means a service provider who, as of the date of the service provider’s separation from service, is a key employee of a service recipient any stock of which is publicly traded on an established securities market or otherwise” (emphasis added).

I recognize the final regulations contain special rules (including rules applicable on account of various corporate transactions) for determining whether someone is a key employee on their separation from service date (i.e., rules that may treat an individual as a key employee during a “window period” which may incorporate their separation from service date). Regardless of the application of the key employee rules, if a formerly public company is privately-held on the service recipient’s separation from service date, do you think they can still qualify as a “specified employee” under the final regs?

Can anyone help me sort this out? Thanks!

[Guest mbw]

We dealt with a similar situation and concluded that once the company goes private, the specified employee delay does not apply because on the date of separation, the employee is not an employee of a company with publicly traded stock.

However, depending on the wording of the agreement, I suppose an argument could be made that the "delay" applies even if the company is not publicly traded. For example, simply stated, if the agreement did not say, "If Sarah is a 'specified employee'...she will be subject to the delay" but instead said something like, "Sarah is entitled to her benefit after her separation and her benefit will be paid to her in a lump sum on the first day of the seventh month following her separation" then arguably what was intended as the specified employee delay is instead the time of payment following the distributable event.

[Guest Grumpy456]

Thanks! Your comments are very helpful.