Stock Appreciation Rights and "Feature to Defer"

[ERISA-Bubs]

I know part of the rule for SARs is that there not be a feature to further defer the compensation beyond exercise.  So a couple scenarios:

1) assuming the SARs have an exercise feature, would it still be considered a feature to further defer if we allow participants to elect to defer payments of SARs under a NQDC Plan IF we require the participant to make the deferral election in the year before the SARs are granted?

2) assuming the SARs have no exercise feature (i.e. the SARs are paid out automatically as soon as vested) THEN would it be okay to defer the SARs under a NQDC Plan so long as we require the participant to make the deferral election in the year before the SARs are granted?

[Luke Bailey]

18 hours ago, ERISA-Bubs said:

1) assuming the SARs have an exercise feature, would it still be considered a feature to further defer if we allow participants to elect to defer payments of SARs under a NQDC Plan IF we require the participant to make the deferral election in the year before the SARs are granted?

ERISA-Bubs, that would seem to be a deferral feature that would not seem to fit within the exceptions permitted in Treas. Reg. 1.409A-1(b)(5)(i)(D) so I think would be a problem.

18 hours ago, ERISA-Bubs said:

2) assuming the SARs have no exercise feature (i.e. the SARs are paid out automatically as soon as vested) THEN would it be okay to defer the SARs under a NQDC Plan so long as we require the participant to make the deferral election in the year before the SARs are granted?

ERISA-Bubs, that seems like any other right to further defer NQDC, so if exercised a year before payment would otherwise have been made and  pushes payment off by a minimum of 5 years would seem to be OK.

In the above I am responding to your brief explanation of what I interpret as a hypothetical. A variety of facts and circumstances could affect the actual answer, so the above is just to prompt your own thoughts and research.