Severance Agreement

[Guest Buzzman]

A severance agreement says "we'll hand you a promissory note for $X within 60 days of termination" and then goes on to provide that "the promissory note will require equal monthly payments of principal and interest over six months...and may contain such other terms as agreed between employer and employee." Assuming employer delivers a note within 60 days, for 409A purposes is this in effect treated as a lump sum payment, with the employee being "paid" for tax purposes on the date the promissory note is delivered or do the terms of note come into play for 409A purposes to determine if we have a permissible schedule, etc?

[SycamoreFan]

Provided you are not exempt from 409A under any available exemption, I'd think the terms of the note would need to be 409A compliant. 409A is concerned with the timing of income inclusion on the part of the recipient, and the income inclusion would presumably occur when the installments were actually paid pursuant to the terms of the note. Generally, I think 409A makes compensatory promissory notes very dangerous (e.g., a discretionary payment acceleration provision on the part of the company would cause a 409A documentary failure).