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Release Required Independent of Payment Schedule

Christine Roberts

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NQDC Plan provides for payment of benefits in annual installments each March.  Termination of employment generally results in a forfeiture of further payments.  However, under certain conditions, such as, termination by company other than for cause, payments are to continue when otherwise due under the plan, but conditioned upon the participant signing a release of claims (no deadline specified).  Where the release is not a payment trigger (rather, failure to sign a release apparently results in a forfeiture) is it necessary to set a deadline for the release to be returned/and for the revocation period to expire?  

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 That's a rare employer who will pay before getting an effective  release.

At some point, if you want the release to be ADA-compliant, you may face an overlap issue for payments falling within the 28 day period (21 days to consider and 7 to rescind).

If you are willing to continue paying them during that period, so that payment is not altered and forfeiture occurs only for payments due more than 28 days following presentation of the release, I don't see a 409A problem. The problem would be a decision to suspend payments. 

Of course, if a release requirement is being added after the fact for benefits that have already accrued, you may have some Title I issues with the employee.

And, if you are trying to fix an existing document, you will need to review the dreaded Notices 2010-6 and 2010-80 for documentary failures.

Good luck. 

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Christine, if I terminate in January, 2021, but do not provide a release until January, 2022 does the plan provide that I (a) forfeit the March, 2021 payment, or I (b) get two payments in 2022? If (a), I think you're ok, if (b), no.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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