Reserving Discretion to Pay Out Deferred Comp in Either Stock or Cash

[Guest jhall]

Reality check please? I am puzzling over exactly what is meant by "form of payment" for 409A deferral elections. Specifically, what does the statement in 1.409A-2(a)(1) indicating that "an election to defer includes an election as to the time of the payment, an election as to the form of payment or an electionas to both the time and the form of the payment, but does not include an election as to the medium of payment (for example, an election between a payment of cash or a payment of property)[/i]"?

I ask because I am trying to determine whether it is possible to draft a new deferred comp plan providing for the deferral of directors' fees until termination of a director's service that provides the company the discretion to pay out accrued benefits under the deferred comp plan in either cash or stock in the company's sole discretion at the time of distribution.

Does such discretion address the "medium" rather than the "form" of payment or would that be looped into the notion of "form" as well. If it does go to the "medium" of payment involved, does the provision in 1.409A-2(a)(1) mean that such a provision is acceptable?

(Other than this discretion as to paying out in cash or stock, the plan is likely to be very straightforward--elect to defer fees prior to beginning of year, fees are 100% vested, all accrued benefits to be paid out in a lump sum (either in cash or stock) within 90 days of a director's separation from board service for any reason.)

Thanks for any insights.

[JanetM]

My understanding is this - form of payment is annuity, installment, lump sum.

[Guest gaham]

I agree with JanetM and I think you can do what you want to do. 409A regulates only the time and form of payment and it does not matter what "medium" it's paid in.