Addition of a 'separation from service' event and 409A

[kmhaab]

I'm hoping to get some input if I rephrase my question - as I can't find the answer anywhere. Answer must be painfully obvious to everyone but me, as I can't believe this is an uncommon scenario!

Purely non-elective deferral plan (SERP agreement) already pays benefits on a separation from service due to death, disability or normal retirement. Is an amendment to also pay benefits upon involuntary termination an impermissible acceleration of benefits under 409A? I can't determine whether that's considered a modification to the timing of benefits or not.

My interpretation is that such an amendment would be a violation of 409A. I would appreciate any and all feedback.

Thank you!

[My 2 cents]

I don't work with SERPs that much, but wouldn't the employer, in most involuntary termination situations, prefer not to pay the SERP out at all? Or is this one of those "pay them some money so they will go away" situations?

[jstorch]

I agree that such an amendment would be a violation of 409A. See Treas. Reg. § 1.409A-3(j)(2): "Generally, the addition of a permissible payment event ... results in an acceleration of a payment if the addition...could result in the payment being made at an earlier date than such payment would have been made absent such addition...." Can you use the separation pay arrangement exclusion from 409A under § 1.409A-1(b)(9)(iii) to get to where you want to go?

[gc@chimentowebb.com]

You could look at it this way. Your plan currently has separation from service as a payment event, and it also has a vesting condition if separation occurs prior to normal retirement age.

You are not adding a new payment event.

Instead, you are now just forgiving a vesting condition by allowing for payment if separation before normal retirement date is involuntary. There is a specific example in § 1.409A-3(j)(1) which deals with acceleration of a separation from service vesting requirement from 10 years to 5 years. Even though this results in potentially faster payment, it is not an acceleration.

Regards.