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acceleration of vesting/payment


Moosen14

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I was wondering if anyone had direct experience or could point to guidance on an acceleration of payment/acceleration of vesting question.  

 

The regulations clearly permit an acceleration of vesting (Treas. Reg. 1.409A-2(j)(1)).  For example, if an amount of deferred compensation vests after ten years and is payable upon a separation from service, it is not a violation for the service recipient to reduce the vesting requirement to five years, even if a service provider receives a payment in connection with a separation from service before the initial ten year period. 

What if the payment provision provided that a service provider would receive a payment of deferred compensation upon a separation from service that occurs after the participant reaches age sixty.  Would an amendment to the Plan that provides a payment upon a separation from service at age 55 be compliant under the above reference provision (i.e. changing a condition constituting a substantial risk of forfeiture), or would it be considered an acceleration of a payment. The effect appears to be the same, but does the condition being in the payment event provision rather than a vesting provision change the nature of the amendment.  

 

Curious to hear what everyone thinks, or whether it is clearly answered anywhere. 

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In scenario 1 you did not change the event that triggered distribution (separation), you changed vesting. Yes, that indirectly accelerated  potential payment timing.

In scenario 2 you accelerated directly by design the timing of distribution which I think is impermissible.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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I don't know that there is any guidance on point (other than the guidance you point out from Treas. Reg. 1.409A-2(j)(1)), but the scenarios appear to be the same and both permitted under the referenced guidance.

In both scenarios, the event triggering payment is the separation from service. 

Under the second scenario, turning 55 or turning 60 doesn't trigger payment, it is just a condition for whether the participant is entitled to any payment when the triggering event occurs (i.e. the separation).  Since payment is only made in the event of a separation, there is no acceleration because the payment will never be made before separation.  The only change is that an earlier separation is now entitled to payment.  This is exactly the same as accelerating vesting but not payment.

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