Valid payment schedule?

[Guest Salvador A Mander]

The following provision (paraphrased) appears in a non-exempt severance plan adopted on March 1, 2011:

If I am not employed by June 1, 2012, I will notify former employer and will receive a payment of $5,000 per month until the earlier of June 1, 2013 or when I become employed.

It's not a short term deferral because payments can be made after the STD period. My question is whether the employee has apparent discretion over when payments begin. Obviously it's in his best interest to notify the ER as early as possible, so this doesn't seem offensive. Can we view the employee's giving of the notice to be the vesting event such that the payment schedule is valid?

[Guest 409 eh?]

The following provision (paraphrased) appears in a non-exempt severance plan adopted on March 1, 2011:

If I am not employed by June 1, 2012, I will notify former employer and will receive a payment of $5,000 per month until the earlier of June 1, 2013 or when I become employed.

You might read the bolded language as providing an affirmative obligation to notify the employer immediately on June 1, 2012 or lose the entire benefit. It doesn't say "when I notify the employer, I'll start receiving..." Thus, it's not an option on the part of the employee to delay as much as it's a condition to receiving the payment. It probably also helps that the payment continues only until the earlier of those dates, so failure to notify causes a forfeiture at least of part of the payments - it doesn't move the payments into another tax year.

[JanetM]

Since when do companies write severance plans that pay people who quit?

You don't have deferral in severance plan. The plan states that when you get shown the door, you vest in the benefit. How and when it pays it is not an issue. What the plan says it how it works, the prior EE has not say in when or how the payments are made.

This sounds more like a change in control plan for severance. With specific date of june 1 2012. Make me think the company is being sold and those most likely to be let go after the sale are being covered.

[401 Chaos]

I agree it is hard to know exactly what is going on looking at just that limited provision out of context. I read it to probably be some sort of additional severance benefit that kicked in if the individual still had not found other employment by June 2012. Maybe they got severance already (or more monthly severance through May 2012 or something and former employer is agreeing to provide 12 additional months of severance if they haven't found another job by June? Not sure if that is in the ball park or not. If it is something like that though, it is hard to know exactly how to analyze under 409A as it seems to be a vested right to the payment now--doesn't appear from this they have an affirmative obligation to look for a job. Perhaps this is a person who supposedly could make much more than $5k per month so there is clear incentive for them to look for other employment and not rely on the $5k per month. The fact though that all they seem to have to do is not take a job and notify the former employer of that would make me think this is arguably already a vested right. If so, could you argue that it is a right set to be paid on a compliant monthly schedule provided the individual is not employed and notifies the company of that fact? I would think the company would want to verify employment status immediately prior to June 2012 regardless of when the former employee provides notice.

[Guest chinky]

hi everyone i am newbie......i hope my hello will get some responses

[JanetM]

Hi Chinky. Are you a pension geek like the rest of us?