Lump-sum to 5 annual installments

[austin3515]

Is it possible for a deferred comp plan to change from a lump-sum payment following termination to 5 annual installments?

The current document indicates that participants are paid 100% of their balance 90 days following termination of employment. There are payment elections permitted of any kind.

We want the executives to be paid in 5 annual installments to help ensure that they will be in a lower tax bracket when they receive the payments, as the participants are generally expected to remain until retirement anyway.

It seems as though to allow this we are required to defer the first annual installment until 5 years AFTER their termination date. Is that accurate?

[XTitan]

If the plan doesn't permit it now, the plan would need to be amended, but the 1 year/5 year rule would need to apply as far as existing balances.

[austin3515]

aka I am correct that even if we amended the plan today, and someone terminated in 2025, the first installment could not be paid until 2030?

[XTitan]

Correct, at least as far as current balances. You might want to consider amending so that prospective balances automatically receive the 5 pay so those can commence at retirement without a 5 year delay.