SROF/Past Service Credit

[Christine Roberts]

Service bonus policy for non-top hat group provides that company will pay an employee a cash bonus in or immediately following the end of the employee’s final year of employment provided that:

1) The employee has worked for the employer at least 10 years at the time of termination.

2) The employee has received satisfactory performance reviews in the year of termination and in the two years prior (or in the three years prior for an employee who terminates prior to receiving a performance review for the year in question).

3) Termination or resignation is for reasons other than unsatisfactory performance or violation of any company policy or standard of conduct.

4) The employee executes a general release of liability in favor of the company. Timing of payment will comply with Notice 2010-80 and in no event will be made after March 15 of year following year of termination (employer follows calendar year).

Benefits are forfeited in event employee refuses to sign release.

The Company reserves the right to modify or eliminate the service bonus policy at any time, for any reason, without notice.

The amount of the service bonus is completely within the Company’s discretion but generally will take into account the employee’s length of service and final base compensation.

Question - does fact that bonus formula is based on past service meant that a deferral election is required upon initial eligibility, e.g., completion of 10 years of service with satisfactory performance reviews? Or does true eligibility not arise until the reason for termination is clear and it is not for unsatisfactory performance, violation of policy? And does fact that termination must meet certain criteria preserve SROF until that time?

Any comments are appreciated.

[gc@chimentowebb.com]

Question - does fact that bonus formula is based on past service meant that a deferral election is required upon initial eligibility, e.g., completion of 10 years of service with satisfactory performance reviews? Or does true eligibility not arise until the reason for termination is clear and it is not for unsatisfactory performance, violation of policy? And does fact that termination must meet certain criteria preserve SROF until that time? Any comments are appreciated.

Answer:

The way I look at your program, it is just a short term deferral paid no later than March 15 following the first vesting year. (No one is vested in your plan throughout their career because voluntary resignation or termination for cause prevents payment of the bonus.) The fact that the company looks to past service for eligibility and bonus computation is irrelevant. No deferral elections are necesssary.

Now, if you had top hat people in the program (or if you are convinced you do not have ERISA pension benefit or state law issues by offering deferral choices to the average rank and file) and if you wanted them to have a deferral election to get paid some years after termination of employment, you could either do a one year / five year election which is permitted for short term deferrals, or, assuming the person is not in another elective deferral plan already, you could offer deferral elections within 30 days of commencing participation, subject to proration in the first year. However, I think you just want to pay after separation, so I don't see the need for a participant election.

G

[Christine Roberts]

Question - does fact that bonus formula is based on past service meant that a deferral election is required upon initial eligibility, e.g., completion of 10 years of service with satisfactory performance reviews? Or does true eligibility not arise until the reason for termination is clear and it is not for unsatisfactory performance, violation of policy? And does fact that termination must meet certain criteria preserve SROF until that time? Any comments are appreciated.

Answer:

The way I look at your program, it is just a short term deferral paid no later than March 15 following the first vesting year. (No one is vested in your plan throughout their career because voluntary resignation or termination for cause prevents payment of the bonus.) The fact that the company looks to past service for eligibility and bonus computation is irrelevant. No deferral elections are necesssary.

Now, if you had top hat people in the program (or if you are convinced you do not have ERISA pension benefit or state law issues by offering deferral choices to the average rank and file) and if you wanted them to have a deferral election to get paid some years after termination of employment, you could either do a one year / five year election which is permitted for short term deferrals, or, assuming the person is not in another elective deferral plan already, you could offer deferral elections within 30 days of commencing participation, subject to proration in the first year. However, I think you just want to pay after separation, so I don't see the need for a participant election.

G

Thanks for the comments, George. I appreciate the input. Can I understand your reply to be the same even though a benefit would be available to an employee who voluntarily resigned for reasons other than cause? I.e., your reply could be read to say no bonus if (a) voluntary resignation or (b) fired for cause, when in fact the plan would provide no bonus to an employee who either was fired or resigned for "cause" reasons.