Impermissible toggle?

[Miner88]

I'm reviewing a deferred compensation program that has the pay-out based upon the value of the service recipient's stock.  There are several 409A permissible payment triggering events (separation from service, disability, change in control).  In the payout section, it says that upon a triggering event, 1/3 of the deferred comp will be paid out over each of the next three years.  Then, there is a provision that says in the case of a Change in Control,  if the terms of the payout for the shareholders under the CIC are more favorable than the standard payout above, then the payout will occur in accordance with the terms applicable to the shareholders in general.

1.409A-3(i)(5)(iv) says: "Payments of compensation related to a change in control event...that occur because...the service recipient or a third party purchases a stock right held by a service provider, or that are calculated by reference to the value of stock of the service recipient (collectively, transaction-based compensation), may be treated as paid at a designated date or pursuant to a payment schedule that complies with the requirements of section 409A if the transaction-based compensation is paid on the same schedule and under the same terms and conditions as apply to payments to shareholders generally with respect to stock of the service recipient pursuant to a change in control event...."

I don't see this as an impermissible toggle - there is only one payout schedule in the case of a CIC- in accordance with the terms of the general shareholders agreement if they are more favorable than the standard terms; otherwise the standard terms apply. 

Does that interpretation seem reasonable, or am I way off base?

[XTitan]

Actually, I read 1.409A-3(i)(5)(iv) as saying that the payment would be treated not as a CIC payment but a scheduled date payment.  Doesn't look like a toggle issue to me.

[Miner88]

Thanks XTitan - that was my original thought when this first came up, but someone steered me down the other path thinking it may be a stronger argument.  So, I think we're OK here!