Ability to Amend Compliant Severance Terms in Employment Agreement

[401 Chaos]

If you have a 409A-compliant employment agreement that provides for severance to be paid out over 2 years, can you amend that mid-term to provide for payment in a lump sum in a case where there has not been a separation from service and no separation of service is anticipated (i.e., although there is a legal right to the severance if terminated, the severance has not vested)? Seems to me that this would arguably create an impermissible acceleration of the severance benefits even though not vested at the time of amendment.

If the answer is no, could you amend the agreement at the end of the regular term and/or prior to automatic renewal to provide for different payment terms going forward?

[XTitan]

My guess is that the additional payment method is a change to the time and form of payment subject to the 1 year/5 year rule.

[401 Chaos]

Thanks. I think that's my assumption as well. So, in a case like the one here where you go from installments to lump sum, that would seem to go in the wrong direction and be an acceleration however if you had a lump sum and wanted to go to installments, maybe you could if you complied with the 1 / 5 year rule.

It is interesting situation because my understanding is that if you had an unvested severance right that didn't comply with 409A (e.g., failed to include a 6-month holdback) you have some additional relief until end of 2009 to make a correction there. Seems though that you would only be permitted to change or correct problematic provisions with that relief and not change a compliant term in a way that adjusted the payment terms. Does that seem correct?