Document failure corrections

[Guest JMN]

Plan provides that payout under performance-based comp plan that does not utilize STD exception provides that payments under plan are offset by any amount that service provider owes to company. The plan has other failures that are eligible for correction under 2010-6, but I am not finding any relief for this provision.

The appropriate correction would seem to be to simply eliminate the offset.

Anyone know how these are being handled or have any ideas?

[401 Chaos]

JMN,

Does the provision in your bonus plan document provide for the offset to happen prior to the time the payment would otherwise be made or does it merely contemplate that once the bonus payment is to be made per the terms of the plan, that amount might be offset by other amounts owed to the company?

I'm curious because I've always been confused by the offset restrictions. When you read the preamble discussion, it seems to me Treasury's concerns in this area are such that they would have a problem with any sort of offset, even if that only occurred after the deferred comp amount had become due and payable under the terms of the plan and resulted in no ability to manipulate or accelerate timing. But then when you look at the actual regulations, they appear to provide an exemption to the offset restriction of up to $5,000 per year, even if that essentially means accelerating the timing of the deferred comp payment to reach the offset.

I'm not sure if I'm reading the offset rules correctly or if this would be the case with your facts but it seems to me that a plan might provide for the settling up of amounts due provided there was no acceleration of the payout under the plan. I have a hard time seeing how the parties manipulate the benefit if the settling up does not happen until after the plan distribution is due. If you tax the full deferred compensation payout to the participant, why would the IRS care if you deduct other amounts owed as part of the final check? Would be delighted for you to confirm that is a correct reading.

[Guest steverino]

I have asimilar question for an operational failure as aresult of permitting a payout amopunt to offet an employer debt. I agree that there is an argument that the regs themselves do not explictly prohibit this although the preamble does em to contemplate a prohibition. My question is, is there a mechanism in 2008-113 to correct this if it is considered an operational failure? Would VII.D. apply? Is it an excess deferred amount? My initial thought is no, since it is as if the participant received the amount (by havin it offset a debt).