employee discounts

[Guest wms3]

We have a client who gives its employees and key executive retirees an employee discount. I can't seem to find a reason why the employee discounts to the specified employees would not be considered nonqualified deferred compensation, and therefore subject to 409A. Does anyone have any guidance on 409A's application to employee discounts? Thanks in advance!

[masteff]

What mechanism of the discount causes the employee to have a deferral of income from the company?

An "employee discount" can mean anything from $1 tickets to the local ballet to reduced prices on company stock. So you might explain in non-confidential terms what's being discounted to explain why you feel the discount might result in future income to the employee as a result of the transaction.

[Guest wms3]

What mechanism of the discount causes the employee to have a deferral of income from the company?

An "employee discount" can mean anything from $1 tickets to the local ballet to reduced prices on company stock. So you might explain in non-confidential terms what's being discounted to explain why you feel the discount might result in future income to the employee as a result of the transaction.

The employer is a retail merchandiser that sells housewares and furniture. The employer gives all of its current employees a fixed percentage (let's say 15%) off of its merchandise. Most employees lose that discount when they terminate their employment. However, key executives are promised the employee discount forever (it's typically drafted into their employment agreements). Therefore, it seems to me that the lifetime right to the discount as a term of the executives' employment is a form of deferred compensation. Is that incorrect?

[Guest Eric.]

These are discounts and have nothing to do with the deferal of compensation or bonus and aren't payable upon any service or service-event. The fact that they are mentioned in a contract is nothing more than a promise to extend (not pay) a discount if the employee (or ex-executive employee) should choose to purchase from them instead of another business at whatever time that may be.

I challange you to have some "fun" and rev up your analytic and spreadsheet skills, though, and try to project the values you would use ...