Single Time and Form

[KJohnson]

I know this basic issue has been covered in another topic, where there seemed to be a consensus that different lengths of installment payments woudl be different times and forms of payment. I think that was based on the following language in the preamble

For this purpose, a series of installment payments over a predetermined period and a series of installment payments over a shorter or longer period, or a series of installment payments over the same predetermined period but with a different commencement date, are different times and forms of

payment.

What if you had a five year employment contract which stated that if an employee was terminated without cause he woudl be paid his/her base salary on a monthly basis for the remaining term of the contract. Do you have different "lengths" for the installments based on when the employee is terminated and therefore different "forms" based on the same event--separation from service?

[J Simmons]

I will be very interested to see what others might have to say on this topic.

I do not think that under the scenario you posit that you would have different times and forms of benefit. Different times and forms of benefits usually has meaning in the context of when and how the employer and employee must make elections as to which time payout will be made or begin, and how (e.g., all in one lump sum or installments over a certain period of time).

The situation you describe is a single form of payment--monthly from the date of severance (without cause) until 5 years pass from the date of hire. The only potential manipulation or discretion as to time of payment (and consequentially, amount of payment) comes into play as to when the employer might terminate the employee without cause. That's a different question under 409A than the different times and forms of benefits concept.

[jpod]

J Simmons' conclusion has to be the correct conclusion. Any other conclusion stands Section 409A and common sense on their respective heads. Can you find solid support for that conclusion in the regs? Not sure. If I were representing the employee I would play it safe and ask for a lump sum discounted using a reasonable interest rate, or ask for it to be paid under the 2 and 2 rule (assuming it falls below the 2x 401(a)(17) threshold). If I were representing the employer, I would advise the employer that it may be an issue, but the W-2 reporting exposure is minimal.

[KJohnson]

Thanks for the responses. My reaction was the same--that can't be the rule. But then, like many things involving 409A what makes sense doesn't always track the language of the regulations. I started questioning whether this was, in fact, different than having multiple installments for shorter or longer periods of time for the same event.

Hadn't thought about the lump sum based on a formula taking into account the remaining years of the contract discounted to present value.