postponement election by a specified employee

[gc@chimentowebb.com]

How would you administer the 1 year/5 year elective postponement rule for an employee who is a specified employee?

Example: Jill is a specified employee with a payment due at separation. She intends to retire in 7 months, but the payment must be delayed for 6 months. Is the 1 year deadline to make the postponement election measured to the date of separation when the payment would have been made, if not for the 6 month delay? If so, it is too late for Jill to postpone? Or is the 1 year election deadline measured to the date it will actually be paid, 13 months from now in this example, which would make this a timely election for Jill? And, just to be consistent, from which date - termination date when it would have been paid or 6 month delay date when it is paid - does the 5 year postponement clock run against?

I'm thinking that the 1 year and the 5 year periods are each measured against the actual payment date, taking the 6 month delay into account as a plan provision. In other words, Jill in this example could make a timely election, even though only 7 months before the date when the payment would have been made were it not for the 6 month delay. The 5 year postponement period would also be measured from that actual payment date. 

Regards!

[FORMER ESQ.]

Your analysis is correct. Assuming your plan/agreement explicitly provides that the payment date for the specified employee is after 6 months following the separation from service (which it should), the subsequent deferral election as you state above would be timely made. 

[Luke Bailey]

The rule for separation from service is that the change not take effect for 12 months. So in the hypothetical, Jill should make her deferral election and then hope that she does not terminate within the next six months. If she does, there is no 409A violation, but the attempted deferral would be ineffective.