Frozen DB, Bonus in lieu of future benefits

[Guest A125]

Following corporate merger, ER froze DB plan. ER paid an after-tax "bonus" intended to make-up the benefit difference between the old DB plan and the new 401(k) plan. (There is no union involved.) The bonus was automatically deposited in employee's accounts and taxes withheld. On the same day as the deposit, ER sends letter to employees requiring them to sign a statement saying that if the employee leaves within 5 years, employee will have to pay a portion of the bonus back. Alternatively, the employee can decline the bonus, pay it back and the ER will not report the bonus on employee's W-2.

Employee knows that he plans to retire in 2 years. There is no exception to repayment for retirement. Therefore, he will have to pay 60% back. He is concerned because he has already paid taxes on 100% of the bonus and the bonus puts him in a higher tax bracket.

While the receipt of bonus money seems like nothing to complain about......this seems like a very sloppy way of doing things. Any thoughts on how this employee can protect himself or if the repayment requirement is valid?

[david rigby]

Sorry, I have no idea if this ER-provided requirement is valid. Sounds like a Q for a labor/employment attorney.

IMHO, an EE should ask the ER about the tax withholding Q.

A125,

My response is several weeks after the original posting. Do you have any other perspectives on this topic that you are willing to share?

[tymesup]

It sounds like the EE will net 40% of the bonus. Unless the income was paid in a very high tax year, and repaid in a very low tax year, he should come out ahead.

Does he plan to tell the employer he's going to retire in two years?