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409A Change in Control loophole?


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Plan only provides for one of the 409A CIC options: a "change in ownership of a substantial portion of corporate assets." Under the Regs this means the date on which a person or group of people acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by that person or group of people) assets from the corporation that have a total gross FMV equal to or more than 40% of the total gross FMV of all assets of the corporation immediately before such acquisition.

Under the terms of their plan, CIC accelerates vesting and is also a payment trigger.

A 58% owner wants to leave the company in 2 years and have the other owners absorb his 58%. If the 58% owner transferred half (29%) in one 12-month period and the remaining half (29%) in the subsequent 12-month period, does it circumvent the CIC trigger? Company does not want the transfer from the 58% owner to trigger a CIC.

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Agree with QDROphile. If the plan only provides a CIC payment trigger on a sale of assets, the transfer of stock among existing shareholders will not trigger a CIC. The 409A rules provide permissible CIC definitions, not mandatory ones. If the plan hasn't opted to use the change in stock ownership rules, they won't apply.

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