Termination of Pre-2005 Plan

[Guest cphcs]

An employer maintains a pre-2005 deferred comp plan. The plan is currently grandfathered due to no material modification. The employer desires to terminate and liquidate the plan, but the document does not provide for distribution upon termination.

Can the employer amend the plan to provide for distribution upon plan termination, subject to the restrictions in 409A? This would be a material modification that would cause a loss of grandfathered status, but the employer is ok with that. As long as the distributions upon termination are made within the time period allowed under the regulations, this seems to work.

Similarly, it appears that the plan could be amended to allow participants to elect a new time and form of payment election. Participants could then elect to receive distribution as early as 2009. This would be a material modification but seems to work provided the plan otherwise complies with 409A.

I welcome any comments on these scenarios, particularly any problems that I am not recognizing. Thanks

[Just Me]

Re your second question, let's not forget the "old" constructive receipt rules. If you give all participants the option to change form and timing, with payment as soon as January 2009, for those that don't elect this (it's only 60 days away) I would be concerned about constructive receipt.

[Everett Moreland]

Just Me:

I think there is not a constructive receipt problem if done right. If (as I will assume) current employees have a contract right to receive their current benefit in installments over 10 years after terminating employment, and the employer offers to accelerate payment of their current benefit, I think that offer would not cause a constructive receipt problem, and I think an employee who declines that offer would not have a constructive receipt problem.

[Guest Eric.]

First comment - Are you certain this is not addressed in the NQDCP's Plan Document? I'm not sure if I've ever seen a PD that did not have a stock sentence that grants the power to terminate the Plan and distribute.

Though most responses will remain the same, I think it would be useful to know what type of Plain you are talking about - plain vanilla NQDCP or a product such as a KEYSOP

In terms of the 409A modifications to the Plan, keep in mind you have 2 months left to get them in writing.

I'm assuming there are no vesting issues to consider. There doesn't appear to be a constructive receipt rule.