Subsequent Deferral Election

[Steamboat]

A participant makes a subsequent deferral election. Before the 12-month period before it will be effective elapses, can she void that subsequent deferral election and make a different subsequent deferral election or is she locked in until the 12 months expire?

[gc@chimentowebb.com]

The postponement agreement must be irrevocable by its terms during the 12 months prior to the originally scheduled payment date. 

If it was executed earlier than that (e.g. 15 months before the original payment date), it can be revoked prior to the start of the 12 month period. Chances are the language says it is irrevocable after signed, so you may need the employer to grant permission for the revocation, as long as nothing is revoked within the 12 months preceding the originally scheduled payment date.

 

 

 

[Lucky32]

This presumes that the plan is not subject to 404(c), otherwise the participant must be allowed to change their election at least once every quarter.

[EBECatty]

1 hour ago, Lucky32 said:

This presumes that the plan is not subject to 404(c), otherwise the participant must be allowed to change their election at least once every quarter.

This is posted in "409A Issues" and applies only to nonqualified plans. 

[LRRichey]

These 409A "subsequent election" (SE)  of timing and form of payment situations can become quite complex depending on what the plan says about them and what participant is trying to achieve, but also needing to complying with the three requirements to be a valid SE.  The three requirements are: 1)   SE cannot take effect for at least 12 months after it become irrevocable, in all SE cases; 2) the SE must be made at least 12 months prior to the date previously scheduled for the first payment,  in the case of an SE changing an existing specified time or fixed schedule deferral election; and, 3) a valid SE also requires that the payment date be set back a minimum of  5 calendar years from the date it would have otherwise been paid, if either the timing or form of the payment is proposed to be changed.

I agree with gc that an SE might be replaced with a new one if it is not yet been made irrevocable by terms of the plan (so see the plan first).  Unfortunately, as he indicated, it typically is irrevocable when signed or submitted by established on-line administrative processes, or enters the "12-months prior" period.

Just an FYI - You use the phrase ""void" that SE", which suggests the participant may just be trying to undue the changes made by their first SE.  Note that the third requirement for a valid means that an irrevocable SE is going to cause an automatic 5-year timing setback of the start date, even if a participant really only intended to change the form of payment (which my experience indicates is quite often the case) , and somehow this required setback consequence is overlooked or " misunderstood".  A  participant's use of a second SE to attempt to return to their initial election timing will be an issue, since the second SE would be attempting a 409A prohibited "acceleration" of the revised distribution date created by the first valid SE (and the second SE would even add another 5-year setback, based upon the setback date under the first SE). 

The primary citation is Treas. Reg. Sec. 1.409A-2(b).  However, for more information/detail with citations on SEs, you might try Q&A's 127-137 (especially 127 & 128), in the American Bar Association publication, Sections 409A and 457: Answers to 300 FAQs, 4th Edition, 2021