Use of 409A Transition Relief to Terminate SERP this Year and Pay Next Year

[EGB]

Does everyone agree that, pursuant to 409A's transition relief, I can amend a SERP plan (despite it's existing terms and 409A's general anti-acceleration rules) to state that it will be terminated this year, and all payments will be made next year in lump sums?

In advance, thanks for your comments.

[401 Chaos]

This may be a difference in semantics but I think the transition relief certainly provides broad flexibility to change or "amend" the payout terms in most cases, including, I think, to do that for all participants in a plan thus essentially terminating the plan, I think that is technically different from "terminating" the plan. There I think you would need to pay attention to the various plan termination rules such as delay in distribution and avoidance of termination within an economic downturn.

[EGB]

This may be a difference in semantics but I think the transition relief certainly provides broad flexibility to change or "amend" the payout terms in most cases, including, I think, to do that for all participants in a plan thus essentially terminating the plan, I think that is technically different from "terminating" the plan. There I think you would need to pay attention to the various plan termination rules such as delay in distribution and avoidance of termination within an economic downturn.

Thanks for your comments. I agree that it may be a difference in semantics. We would amend by year-end to state that, nothwithstanding any terms of the plan to the contrary, all participants will be paid in a lump sum in, say, June 2009, effectively terminating the plan once all payments are made.

[jpod]

Consider whether, under the current terms of the plan, you need each participant to sign off on this change in timing. To the extent that you need participant consent, this raises constructive receipt issues under Section 451, notwithstanding compliance with 409A or the transition rule. If you determine that participant consent is necessary as a contractual matter, to fortify your argument against constructive receipt in the case of a participant who does NOT consent, you should consider making the new distribution date at least 12 months after the deadline given to each participant to either consent or not consent (e.g., deadline to consent in writing is 12/31/08; new payment date if participant consent is 1/2/10).

[EGB]

Consider whether, under the current terms of the plan, you need each participant to sign off on this change in timing. To the extent that you need participant consent, this raises constructive receipt issues under Section 451, notwithstanding compliance with 409A or the transition rule. If you determine that participant consent is necessary as a contractual matter, to fortify your argument against constructive receipt in the case of a participant who does NOT consent, you should consider making the new distribution date at least 12 months after the deadline given to each participant to either consent or not consent (e.g., deadline to consent in writing is 12/31/08; new payment date if participant consent is 1/2/10).

Great point. There are only a handful of participants left in this plan. We only have one participant for whom we feel we may need consent. We are vesting the other participants early, so we do not think we need their consent. Thanks again for your help.

Beth