NQDC for Non-Controlled Group Employers

[EBECatty]

Employer has a nonqualified plan with salary deferrals and some employer money. They also have several subsidiaries that are owned 50-80% and therefore not in the same controlled group. Can key employees of the subs participate in the parent's plan?

All taxes run through the payroll system of the entity actually employing the employees, i.e., subsidiary payments processed and reported through subsidiary's payroll, not parent's.

Can the subs be drafted into the plan document's eligibility terms? Separate participation agreements?

[QDROphile]

You should ask the professional adviser who has responsibility for compliance with section 409A of the Internal Revenue Code. Even if you are not trying to achieve the answer for the employer yourself, you will have to consult that person before any final decision are made, so you might as well take the shortcut to where you need to go.

[EBECatty]

Section 409A will impact the operation for sure, but my question was more fundamental than 409A.

I'm familiar with the 409A-specific rules that could apply here, for example, identifying the relevant corporation for a CIC, lower threshold for ownership when determining service recipient for purposes of separation from service, etc.

There are some other issues where I think it's not as clear-cut within 409A--basically most other references to "service recipient," which includes only employers under common control.

Those will all drive some details of plan drafting.

I guess I was hoping for input on whether there are more fundamental reasons a non-controlled group employer couldn't participate in the parent's plan, whether anyone's seen this setup before, how did the document look, and so on.

If this won't work, the only other real option I see is setting up separate NQDC plans for every subsidiary, which doesn't sound very appealing.

[QDROphile]

Fair enough. What are you trying to accomplish with respect to economic responsibility for the benefit? The alignment of payment responsibility with respect to each participant seems to be a determining issue. Assuming you have a free hand with the documents, separate documents for every subsidiary are not necessary, but provisions that identify what the benefit is for each participant, when the benefit is paid, and which employer is responsible for paying each participant are necessary. Remember that for many analytical and compliance purposes, each participant has a plan, but no one is worried about having a document for each individual plan. You can document that in one collection of pages or in multiple collections of pages. Adoption agreements may work for economy of paper and administrative efforts and mental organization, but the adoption agreements will probably need individualized terms to deal with whatever variations apply, such as which employer if responsible for paying the employees. NQDC plans are not as sensitive to formal requirements as qualified plans.

[EBECatty]

Appreciate your thoughts.

The goal would be for each separate entity to contribute any employer contributions, handle distributions and reporting through its own payroll, etc. Essentially each entity would be responsible for its own employees, but hopefully under one umbrella plan document.

I think it would work if the plan document contained standard terms, then added a separate section with definitions and terms specific to each entity. Or, if they will be consistent across each entity, one section with definitions and terms specific to all other non-controlled group entities.

Would need to confirm all the operational rules mentioned above conform.