Reasonably Ascertainable - DB SERP

[Guest Tax Matt]

Employer maintains a nonqualified defined benefit SERP for its employee. SERP provides that "EE is entitled to 100k payment upon retirement after, on, or before reaching 65." EE has reached 65 and employer has not withheld any FICA tax in the past on the SERP. EE is still employed. Is it feasible to assert that the commencement date of payments is not reasonably ascertainable until actual retirement since benefit is contingent on termination date (despite the fact that the benefit (PV of 100k) certainly is ascertainable by assuming he'll retire at a certain date)? Thus, no FICA wages taken into account until termination (unless early inclusion rule is opted).

If not, can employer take into account the PV of entire 100k benefit now (despite EE still being employed)?

[david rigby]

...can employer take into account the PV of entire 100k benefit now (despite EE still being employed)?

Should?

[Guest Tax Matt]

David, essentially I guess that's my question. If they take the amounts deferred into account now using the full PV of his benefit, they'll be able to take advantage of EE maxing out the social security wage base. If they wait until retirement, it may turn out otherwise?

However, since they haven't withheld anything in the past yet, should they wait until retirement?

[david rigby]

What provisions in the statute and regs apply?

IRC 3121(v)(2) implies that waiting until payment date is not valid, unless there is some "substantial risk of forfeiture". Also see reg 1.3121(v)(2)-1(e).

See IRC 83© and regulation 1.83-3© to determine if that terminology applies in your case (your orginal post implies it does not).

Note that 3121(v) does not offer an option of "wait until retirement".

[jpod]

It seems to me that the/an amount should have been subject to FICA/Medicare when it first vested; I am not seeing any contingencies that made it not reasonbly ascertainable at that time. If the limitations period for the applicable 941 has not expired, it may benefit everyone to file the corrected 941 for that year and report the amount of additional FICA/Medicare taxes. Otherwise, the penalty is that the $100K will be subject to full FICA/Medicare when it's paid (although even that result might not be so bad if it's paid in a year in which he has already passed the SSWB due to other compensation received from the employer). Incidentally, it sounds like he could have received that $100k upon separation from employment at any time. If so, why would a reduction to present value be allowed?

[Guest Tax Matt]

Ok, I see. I guess I am getting hung up on taking the position that the commencement date of benefits is not reasonably ascertainable until "termination." For example, Treas. Reg. § 31.3121(v)(2)-1(e)(7)(Ex. 6), indicates that the EE will receive a lump sum at the later of age 55 or upon termination. As a result, since the commencement date of benefits is not known, the applicable amount deferred in a previous year is not reasonably ascertainable until actual termination occurs.

Similar situation here, although he is 100% vested, the commencement date of benefits is not known until he actually chooses to retire, but they could take advantage of the early inclusion rule in 1.3121(v)(2)-1(e)(4) and include the amount by using a reasonable assumption.