Plan Termination Amendment

[Randy Watson]

A plan is being terminated and payments are being accelerated under 1.409A-3(j)(4)(ix)©. That section generally prohibits payments within 12 months of the plan's termination, but requires all payments to be made within 24 months of the termination. Does the termination amendment need to spell out specific payment terms within that 12 month period? In other words, should the amendment say that payments to participants will be made in a lump sum on date "X" (for example)? Could we simply include a provision that mirrors that in the regs saying payments will be made no sooner than 12 months and no later than 24 months after termination and leave it up to the employer to decide how and when to make payments within that time period?

[J Simmons]

If the 2nd 12 month period, the one during which the payouts must occur, straddles the end of one and the beginning of another calendar year, then I would specify X date for payout rather than just describe the dates of that 2nd 12 month window for payout. That way, it reduces the chance for an employee to have discretion over which of the two calendar years his payout will occur in. Just a precaution, but discretion over the year of payout is what 409A aims to end.