Employer extends severance - 409A issue?

[ERISAgeek111]

Executive has a $600k base salary under an written employment agreement.  If he is terminated w/o Cause or he terminates for Good Reason, he gets base salary continued for 1 year plus pro-rated annual performance based bonus.   Employer can extend the severance for up to another year and continue to pay him the base salary  for up to 1 more year.  Meaning, executive would get another 600k of salary (for another year) if the employer extended the noncompete by another year by giving executive notice within 45 days after termination date.  Any 409A issues?

[jpod]

I don't see any.  There is no issue of manipulation of the timing of any payments here.

[ERISAgeek111]

Thanks jpod.  That is exactly my thinking. 

[Luke Bailey]

The payment conditions (quit for good reason or involuntary term w/o cause) meet the separation pay exception, but that only covers payments of up to 2x 401(a)(17) amount (so $560,000). The rest (either $40k or $600k, or possibly much more because of bonus) is not within the exception, so treated as a 409A plan. The issue is not exactly potential for manipulation, but whether the payments with respect to each year have fixed payment dates. Also, if public company make sure to comply with 6-month rule for amounts not fitting within separation pay exception.

[jpod]

The question pertained only to the extra year kicker, so that's all I answered, but Luke's points are well taken. 

[ERISAgeek111]

Thanks Luke.  Yes, this is a 409A plan.  Payments do have fixed payment dates, and this is not a public company.   Agreed, points well taken and as always, thanks for providing your insight. 

[Luke Bailey]

OK. Good luck, ERISAgeek111.