Six month delay / Written plan requirement

[Guest ppw]

The final regulations state: "The six-month delay rule, required for payments due to the separation from service of a specified employee, must be written in the plan ... such provision must be set forth in writing on or before the date such service provider first becomes a specified employee."

A specified employee has a severance agreement that provides for short-term base salary continuation payable only on an involuntary seperation from service. His salary is such that the severance would never exceed the 2x limit.

Q: does the severance agreement need to include a six month delay provision, even though it will never apply? I would have thought that the answer would be "no" since the severance is exempt from 409A, but the plan rules in 1.409A-1©(3)(v) seem broad enough to require inclusion.

Any thoughts would be greatly appreciated.

[Just Me]

If you are saying that you have an involuntary separation pay plan that satisfies the exception to 409A (involuntary only, no "bad" good reason provisions, 2X rules satisfied, etc.), then no, you do not need to include the six month rule. The arrangment is not subject to 409A, so there is no more need to put a six month delay provision in this arrangement than there would be to put it in any other exempt arrangement, like a qualified plan. However, in the event this plan ever fails to satisfy the 409A exception, then the language must be there. Perhaps something like: if he is a specified employee, and if this arrangement is subject to section 409A, then any payment made as a result of separation from service (other than death or qualifying disability or CIC) is subject to a six month delay. Just for protection.