Jump to content

How likely is it that an unfunded deferred compensation plan does not recognize domestic-relations orders?


Recommended Posts

ERISA § 206(d)(3)(A) provides: “Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order.”

Even for a plan that is ERISA-governed, the quoted sentence about recognizing a QDRO does not apply to “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 201(2).

BenefitsLink neighbors, in your experience how likely is it that an unfunded deferred compensation plan omits provisions for following a domestic relations order?

What legal, plan-design, and other reasons motivate an employer to omit QDRO provisions?

What legal, plan-design, and other reasons might motivate an employer, despite the absence of a public law command, to include QDRO provisions (within what tax law permits without defeating the plan’s tax treatment)?

What practical difficulties do employers and plan administrators encounter?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

Thank you for your nice help.

About the nongovernmental § 457(b) plans that include DRO provisions, do you guess that the plan sponsors knew they have the choice not to provide for domestic-relations orders?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

Well, I guess there is a fine distinction sometimes between "knew" and "understand."  I would say that they "knew" but I doubt they really had an understanding. Honestly, I don't know the arguments AGAINST including QDRO provisions - my general thought would be, "Why not?" I'll be interested to see how the discussions here play out.

Link to comment
Share on other sites

My experience, over a few decades, is with SERPs: non-qualified DB plans.  NONE of them have included anything related to a DRO.   This is true even if the SERP's sole function is to provide benefits otherwise limited by 415 and/or 401(a)(17).

Likely, the reasoning is that the Employer has no interest in whatever family matter is behind a DRO.  Also, there are more complicated tax issues, as compared to a qualified plan.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

A few thoughts:

  • In large companies (public companies, etc.) with professionally managed nonqualified plans that are largely 401(k) equivalents, I think there is little reason to omit QDROs. There's usually an accessible pool of mostly vested and fully funded (often in a rabbi trust) money that is easily divided like a 401(k). 
  • Allowing QDROs in nonqualified plans can reduce burdens elsewhere. For example, if one spouse has a large NQDC plan balance but few other liquid assets, usually both spouses would prefer a simple transfer of money from the plan, as opposed to selling real estate, etc. to divide the proceeds. If the plan does not allow QDROs, this won't be an option, even if preferred by both spouses.
  • The major exception, at least in my dealings with primarily private (and often small) companies, is the various types of nonqualified plans that don't neatly fit into the first category above. For example, a SAR plan or a phantom equity plan that pays out based on the growth in value of the company on a future date or upon a sale of the company. If no one can calculate or pay the benefit amount until the company is sold or the participant reaches retirement age, how would you divide the benefits and pay them to an ex-spouse?
  • Also in the small-company context, the company is less likely to be fully funding future benefits on an ongoing basis (often preferring to deal with future payments, at least in part, out of future cash flow) so allowing early payment for a QDRO can cause liquidity problems as well. 
Link to comment
Share on other sites

When an ERISA-governed plan does not recognize domestic-relations orders, do employers suffer difficulties with divorce lawyers and judges who assert that “the plan” must give effect to what the divorce lawyers think of as a QDRO?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

From having prepared QDROs for the past 38 years I can tell you that almost no non-qualified plans will enforce a DRO.  I have found only two exceptions - some of the non-qualified plans at Lockheed-Martin, and one non-qualified plan an General Electric.

In the event that the employer/Plan Sponsor goes out of business or files for Bankruptcy, the Participants become unsecured general creditors and stand in  line with  all  other unsecured creditors.   Since most non-qualified plans will exist before the divorce and will be ongoing after the divorce, and will likely increase or decrease in value in the future based on performance criteria that may relate backwards and/or forwards, but in all events will make it almost impossible to figure out the value of the marital share at the time of the divorce and the value of the marital share years down the road where some or all of the change in value may be due to post marital effort by the employee, or by the division in which the employee works, or by the company as a whole. 

The only reported case in the US discussing the valuation of a non-qualified and unfunded deferred compensation plan is  Douglas v.  Douglas, 281 A.D.2d 709, 722 N.Y.S.2d 87 (2001), holding that a non-qualified and unfunded deferred compensation plan was capable of being valued for marital property purposes.  Said the Court:


        “Next, plaintiff argues that his ability to collect from the unfunded, non-qualified retirement plan is too speculative to be valued as a marital asset. In support of his argument, plaintiff points out that since the plan is unfunded, payments are dependent upon the partnership remaining profitable and that to be eligible, one must be a partner for 10 years, be 50 years of age, not leave to compete with the partnership in another firm, and retire. Since plaintiff was not 50 years of age on the date that the action was commenced, his expert attempted no valuation of his interest, asserting that it was valueless.  To the contrary, non vested pensions are subject to equitable distribution (see, Burns v Burns, supra, at 376) and the uncertainty associated with the fulfillment of the conditions precedent to the receipt of such nonvested pensions does not present a significant impediment to a fair and realistic distribution of this type of asset (see, id., at 376).

        “Defendant's expert, on the other hand, noted that no partner had left plaintiff's firm to work for a competing firm in over 50  years and that historically the partnership was profitable enough to make payments called for by the plan to retired partners. Moreover, the expert assumed, and the record discloses no evidence to the contrary, that plaintiff would continue as a partner (in fact, he has more than 10 years as a partner in the firm and is now age 50), and he valued plaintiff's interest in the retirement plan at $412,700, $460,400 or $479,400, depending on whether plaintiff retired at age 50, 56 or 62. Given the uncontroverted evidence of valuation, Supreme Court did not abuse its discretion by accepting the valuation ascribed by defendant's expert (see, Ferraro v Ferraro, supra, at 598). Lastly, there is no merit to plaintiff's contention that the Majauskas formula (see, Majauskas v Majauskas, 61 NY2d 481) [time value with coverture fraction] should have been employed by Supreme Court since this formula need not be used where, as here, "a lump-sum payment discounted for present value" may be made to effectuate distribution of pension benefits (Mullin v Mullin, 187 AD2d 913, 915; see, Majauskas v Majauskas, supra).”

    See also an interesting case from Louisiana, Knobles v. Knobles, 236 So. 3d 726 (La Court of Appeals, 5th Cir. 2017, where the Louisiana Court of Appeals held that a “restoration plan” adopted long after the termination of the marriage was computed with reference to time during the marriage that the Participant was employed by the company in question.  Said the Court: 
“Although Mark did not qualify for the Restoration Plan until his compensation from Chevron exceeded the applicable annual compensation limit, well after the community ceased to exist, the benefits Mark will receive under the Restoration Plan are calculated based in part on his credited service years accumulated during the existence of the community with Kay. Mark's years of employment during the marriage factored into his right to receive the increased accrued benefits of the Restoration Plan once it became effective and Mark met the requirements; thus, the community has an interest in the whole of the accrued benefit. See generally, De Montluzin v. Martinez, 94-1805 (La. App. 4 Cir. 2/23/95); 652 So.2d 71, 76-77, rehearing denied, (La. App. 4 Cir. 4/19/95). Because Mark's years during the marriage were used to determine his eligibility for participation in the Restoration Plan, we find that Kay is entitled to a right-to-share in one-half of the portion of the plan that is a community asset, despite the fact that a determinative value came into existence many years after the dissolution of the marriage. See, Sims, supra. Although the Consent Judgment between the parties anticipated the community property portion of the Restoration Plan as an undiscovered asset, Kay would have ultimately been entitled to that community asset through applicable jurisprudence and community property laws.” 

    But see D.S. v. D.S., 217 Conn.App. 530, 289 A.3d 236 (2023) that reached the opposite conclusion as the Douglas  case.  In D.S. the decision was based on the opinion of the expert, Harrison, a CPA, that: 


        "As an initial matter, Harrison noted, the provisions for retirement payments set forth in the partnership agreement are not funded and are not carried on the firm's books as a liability. Rather, retirement payments are disbursed from the firm's future earnings. Harrison found it significant that the provision for retirement payments is subject to termination or reduction at any time by a vote of the firm's partners. Harrison pointed out, as well, a provision in the partnership agreement reciting that the payments to a retiree could be adjusted by the firm's compensation committee and the concurrence of a certain number of partners on their determination that the payments are no longer fair to the remaining partners or the firm, or are otherwise inappropriate or inequitable to the former partner. Retirement payments also could be adjusted, deferred, or simply not paid, if the payments to retired partners exceed a certain percentage of the firm's income. In that event, the partnership agreement provides, payments to retirees may be deferred and not paid for up to five years and, if the payments cannot be made during the period of deferral, the obligation of the firm to make payments could be extinguished forever. Distinguishing the partnership retirement provisions from a qualified pension plan, Harrison characterized the defendant's potential to receive retirement payments from the firm as "the epitome of a mere expectancy."  (Emphasis supplied.) 

    Brett Turner, Editor of Westlaw's Equitable Distribution of Property,  commented on D.S. v. D.S. is as follows. 

        “Unvested and Uncertain Benefits.  In D. S. v. D. S.,[new note 26.4] the wife was a partner in a law firm.  The firm's partnership agreement provided "that a partner who has reached the age of fifty and completed at least ten years of service, may retire and receive a stream of payments."[new note 26.5]  The potential benefits "are not funded and are not carried on the firm's books as a liability. Rather, retirement payments are disbursed from the firm's future earnings."[new note 26.6]  In the past, "the firm had changed the formula by which a retiree's pay is determined as the firm's demographics have changed to reflect the greater number of retirees visà-vis active partners,"[new note 26.7] and these changes actually reduced the wife's potential benefits.  A financial expert testified for the wife that the stream of benefits was too uncertain to constitute property.  The trial court agreed, and the appellate court affirmed. 

        “D. S. reached the wrong result.  While the amount of benefits likely to be received was difficult to predict in advance, there was no evidence suggesting that the wife was likely to receive nothing.  The right to payment appears to have been considerably more certain than a stock option, which has a substantial chance to be worth nothing if the stock price is less than the option's strike price. See §§ 6:48-6:49; see generally Bornemann v. Bornemann, 245 Conn. 508, 752 A.2d 978 (1998) (holding that stock options are property).  The court should have held that the right to payment was property, and divided it by deferred distribution, awarding the husband a stated percentage of whatever payments the wife ultimately did receive. 

        “D.S. is especially troubling because the wife's right to payment may very well have been carefully designed to maximize the likelihood that the payments would not have to be shared with a partner's spouse.  The result suggests it is possible for an employer to carefully design a benefit program which gives substantial payments to employees, but which includes just enough uncertainty to avoid division of the benefits at divorce.  D.S. therefore poses a significant potential threat to the policy that retirement benefits earned during the marriage are marital property.   

        “Future cases should hold that unvested retirement benefits are property unless it is entirely speculative whether any benefits will be received at all.  On the facts of D.S., there was a possibility that the wife’s benefits might be reduced, but there was no actual likelihood that the wife would receive nothing at all.” 

Changing to the issue of whether or not "unfunded" is even defined by ERISA, in Demery v. Extebank Deferred Comp. Plan (B), 216 F.3d 283, 285 (2d Cir. 2000), the Second Circuit addressed whether a plan was unfunded where: 1) the employer took out life insurance policies on its employees to help pay for its obligations under the plan and 2) the proceeds of the policies were kept in an account entitled Deferred Compensation Liability Account.

In Demery, the court first recited its previous holding that a plan is unfunded where "benefits thereunder will be paid solely from the general assets of the employer." Id. (citing Gallione v. Flaherty, 70 F.3d 724, 725 (2d Cir. 1995)). Then, the court adopted the following inquiry as instructive: "can the beneficiary establish, through the plan documents, a legal right any greater than that of an unsecured creditor to a specific set of funds from which the employer is, under the terms of the plan, obligated to pay the deferred compensation?" Id. (quoting Miller v. Heller, 915 F. Supp. 651 (S.D.N.Y. 1996)).

 Applying the above test, the court held that the plan was unfunded. Id. at 287. Of particular importance was the plan's express terms, which stated:

        "[T]he Employer's obligation to make payments to any person under this Agreement is contractual and ... the parties do not intend that the amounts payable hereunder be held by the Employer in trust or as a segregated fund for the Employee.... The benefits provided under this Agreement shall be payable solely from the general assets of the Employer, and neither the Employee, the Beneficiary, nor any other person entitled to payments ... shall have any interest in any specific assets of the Employer by virtue of this Agreement. Employer's obligation under the Plan shall be that of an unfunded and unsecured promise of Employer to pay money in the future."
    
    Id. Based on those terms, the court concluded that the participants did not have a greater legal right to insurance proceeds than that of an unsecured creditor, thus the plan was unfunded as a matter of law. Id.


    Other circuits addressing this issue have reached similar conclusions. See Reliable Home Health Care, Inc. v. Union Cent. Ins. Co., 295 F.3d 505, 514 (5th Cir. 2002) (holding that a plan was unfunded for purposes of ERISA, even though plan benefits were technically funded through an insurance policy, since plan participants did not own the insurance policies, and their only right under the plan was to designate death beneficiaries); Belsky v. First Nat. Life Ins. Co., 818 F.2d 661, 663 (8th Cir. 1987) (holding that a plan was unfunded where an employer "obtained the insurance policy with the intention that it could be used in funding the Plan" but "the language of the Plan ... specifically avoids making a direct tie between the insurance policy and the Plan").

     See In re IT Group, Inc., 448 F.3d 661, 669-670 (3d Cir. 2006) (finding a plan to be unfunded where the related Rabbi trust documents specified that the trust "shall not affect the status of the Plans as unfunded plans" and that "Trust assets are subject to creditors' claims in the event of insolvency, and that such claims are on par with those of Plan participants"); see also U.S. Dep't of Labor Opinion Letter 91-16A (July 2, 1991) ("[A] plan will not fail to be `unfunded' ... solely because there is maintained in connection with such plan a `Rabbi trust.'").

    See Colburn v. Hickory Springs,  No. 5:19-CV-139-FL, United States District Court, E.D. North Carolina, Western Division (2020), see: - 
https://scholar.google.com/scholar_case?case=1317766776274361048&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:17102308171145443235:AAGBfm2dXJvPo0nUQKlDLqIPUBXxyXMitw

There are lots of non-qualified plan out there.  See my Memo attached.  Start at page 29 with respect to non-qualified plans that almost never cannot be enforced with a DRO.  

If you can find a plan that has a grant date for the benefit, and a vesting date you can formulate the language necessary for an Agreement, not a DRO.  For example if the grant date is during the marriage and the vesting date takes place during the marriage the entire profit, income  or gain will marital property and will  be marital property and become divisible at the time it turns into cash by whatever means that may be. And the former spouse will receive 50% of such profit, income or gain net of the Participant's taxes and the cost of monetization.

If the grant date is during the marriage and the vesting date takes place after the divorce, profit, income  or gain will marital property and will become divisible at the time it turns into cash by whatever means that may be.  The former spouse's share will be 50% the amount of such income, profits or gain net of the Participant's taxes and the cost of monetization multiplied by a fraction where the numerator is the number of months from the grant date to the divorce, and denominator is the number of months from the grant date to the vesting date. 

Do you really want to wallow into these thickets? 

David 

List of Defined Contribution & Benefit Plans- Qualified or Not - 04-14-2023.pdf

Link to comment
Share on other sites

The court decisions David (fmsinc) notes are mostly about how to measure and value rights that are community property or subject to equitable division. Those points might matter between divorcing spouses, but are external to an employer that administers its obligations under a deferred compensation plan.

I am unaware of any Federal court decision that compelled an employer to pay a nonparticipant according to a State court’s domestic-relations order ERISA supersedes.

BenefitsLink neighbors, have you ever seen such a court decision?

(I ask this as an open question because sorting property rights on divorce sometimes motivates a judge to render a decision contrary to law.)

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

I have never seen a state court order control an ERISA plan. Often times judges order divisions which cannot be enforced...so I'm the lucky one to say the parties must return to the negotiating table because the plan will reject the attempted QDRO.    Also, unlike fmsinc above, I have drafted 100s of DROs on unfunded deferred compensation plans and feel like more times than not the company will permit the DRO.   Some companies have changed their tune on permitting DROs such as EY, Chevron, etc.   The biggest surprise I feel with divorcing clients and their family law attorneys is their expectation that the AP can rollover their NQ benefit to an IRA or qualified account..which of course cannot happen if coming from an unfunded non-qualified DCP via DRO.    Going back to Peter's original question, I think it's a matter of the company permitting (or not) a DRO on the NQ unfunded benefit, not that they have removed any QDRO provisions as those do not exist in a NQ plan.   Another wrinkle in all of this is how companies like EY and Deloitte have NQ plans that shift the company liability from the NQ to a qualified plan over time (such as a cash balance pension with an accrual rate much higher than normal to provide more funding of the overall benefit from a qualified source vs the nonqualified benefit).

Link to comment
Share on other sites

It is a matter of the employer recognizing (or not) a DRO regarding the unfunded plan.

There are many unfunded deferred compensation plans that include provisions for recognizing plan-approved domestic-relations orders.

When I was inside counsel to a big retirement-services provider, our suggested plan documents included PADRO provisions. (I invented and published the moniker to set up a distinct specially defined term regarding plans not governed by ERISA § 206(d)(3).) I don’t remember a customer asking to delete the PADRO provisions. And the customers usually were advised by AmLaw 100 or AmLaw 200 law firms.

As EBECatty explains and in my experience, whether an unfunded plan’s sponsor includes or omits PADRO provisions often varies with the nature of the employer, the kind of plan, whether the employer invests to meet the obligations, the investments (if any), and whether a service provider offers or omits a service for reviewing domestic-relations order and implementing those that are approved.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

  • 1 month later...

Hi, new to this forum, but researching the same topic about splitting of deferred compensation.  Really smart people out here!

So, wondered if some of you could review this recent article about how to have AP receive deferred compensation directly and how to handle taxes.  Seems article below from RSM might be a recent change from how approached (or not?) in the past?

Here's overview of scenario I am researching:

  • Employee was mid-50s senior/executive level management and who was severed during divorce of a long-term marriage.
  • All deferred compensation is considered marital to be split 50/50 and all vested upon separation.  
  • Need to know if a DRO could be written so large-company plan would allow former spouse to be named as alternate payee to be paid directly 50% of all deferred comp. 
  • Deferred comp items consist of some PSUs and RSUs, but mostly deferred comp will be in form of cash and stock, payouts will begin in 7 years and continue for a 15+ years.
  • Former employee continues to do high-end consulting, executive board positions, lucrative investments, etc., so will remain at highest tax brackets, whereas non-employee spouse is in lower tax bracket... so would be a disadvantage to have all paid through former employee, taxed at higher rate, then lesser amount transferred to non-employee spouse.
  • Plan does include "anti-alienation" language, but state statues appear to support that that assignment of retirement benefits to former spouse due to divorce is an exception... referred to "transfers incident to divorce" in article below -- correct?
  • Also, there are 4 remaining stock options awards, all fully vested, with due dates in the next couple of years)... could a DRO also be written for these?

Thanks in advance for your review and insight!  A.

 

Here's the best recent article I've found that explains how to have DRO for deferred comp plan and how to handle taxes.  The full article link from RSM-US.com, with January 2023 date -- so please comment and share if something new is explained here -- I added bolding:

https://rsmus.com/insights/services/business-tax/tax-obligations-of-deferred-compensation-under-divorce-agreements.html#:~:text=The IRS has taken the,a departure from the longstanding

Occasionally employees will go through a divorce and the employee’s future rights under a NQDC plan will be a factor in the negotiations.

Employers need to know what to do if the divorcing parties agree to split the rights to the employee’s NQDC plan. NQDC refers to any arrangement by the employer to pay compensation in a future taxable year in connection with the performance of services in a current (or prior) taxable year. A NQDC arrangement can either be paid in cash or equity (stock-based). NQDC may be in the form of deferred bonuses; phantom stock plans; stock appreciation rights (SARs); restricted stock units (RSUs); or supplemental executive retirement plans (SERPs). For a more in-depth analysis of the forms of equity compensation, read Understanding equity compensation devices.

If a NQDC arrangement is designed to comply with section 409A the employee will have compensation income when the NQDC is paid, regardless of when it vests. Some NQDC arrangements are designed to pay on vesting, some pay on a specified event (such as separation from service or a change in control), and some are paid over time, such as after retirement.

Importantly, a typical NQDC plan is not an asset of the employee and is not a funded arrangement (though the employer might hold some money in the employer’s own rabbi trust (a grantor trust of the employer)) so there is nothing that the employee can transfer other than a right to a future payment.

This article briefly addresses some of the payroll tax, distribution, required tax withholding, and reporting obligations when the employer will have to eventually pay a part of the employee’s NQDC amount to the employee’s former spouse.

This article is not about divorce rules, but generally, the parties cannot force an employer to pay promised compensation earlier than is provided for under the NQDC plan.

Instead, the employer usually receives a court order or other agreement stating that when the employee would otherwise receive a payment, the employee’s former spouse will receive a specific portion of the payment (generally under the same terms). Nevertheless, some employers may be willing to pay NQDC amounts to the employee’s former spouse earlier if the plan so provides. Under section 409A, the employer generally cannot accelerate payments to the employee.

 

Courts or spouses amid divorce proceedings may use a domestic relations order (DRO), or a similar agreement, to notify the employer that the parties have agreed to transfer certain vested nondeferred compensation payment rights from the employee to the employee’s former spouse.

The IRS has taken the position in Revenue Ruling 2002-22 that when an employee transfers his or her right to future payments under a specific NQDC arrangement to a former spouse, incident to a divorce, there is no immediate tax, withholding, or reporting consequences (this was a departure from the longstanding assignment of income principle but is supported under the special section 1041 provisions "transfers incident to a divorce"). The assignment of income principle was applied to NQDC arrangements such that deferred income was taxed to the person who earned it (transferor), and that the incidence of income taxation could not be shifted to the transferee by anticipatory assignment, even if between spouses in divorce proceedings. Thus, the employee's former spouse has ordinary income when the NQDC is paid to the former spouse.

Because these arrangements remain compensatory plans (and thus subject to payroll tax withholding), the employer is obligated to withhold federal income tax and may be obligated to withhold the employee’s portion of federal employment taxes—Federal Insurance Contributions Act (FICA), which includes Social Security and Medicare tax, from the amounts paid to the employee’s former spouse. The employer is also obligated to timely deposit both the employee and the employer portions of FICA and federal income tax withholding to the IRS. The employer reports the taxable income, and the federal income tax withholding, on Form 1099-MISC boxes 3 and 4 to the employee’s former spouse. The employee’s former spouse will be credited with the federal income taxes withheld.

Under this treatment, the employee and the employee’s former spouse are separately taxed, at their own tax rates and under their own social security numbers. The IRS’s position, which is described in revenue rulings, contemplates that the employer will:

Withhold federal income tax (state and local tax, if any, as applicable) from each payment. Most employers use the federal supplemental wage withholding rate (currently 22%) for both the employee’s and the employee’s former spouse’s payments. The 37% federal withholding rate applies to supplemental income that exceeds $1 million.

Report the employee’s federal income tax withholding on the employee’s Form W-2, Box 2.

Report the employee’s former spouse’s federal income tax withholding on the employee’s former spouse’s Form 1099-MISC.

Withhold FICA from both the employee’s and the employee’s former spouse’s payments (generally – there are some complex exceptions based on whether the NQDC arrangement was subject to FICA in earlier years). The employee’s prior wage base is considered when determining the amount of FICA taxes due (i.e., Social Security taxable wage base limit and Additional Medicare Tax threshold) from the employee. For additional information on FICA rules for deferred compensation read Operating Nonqualified Deferred Compensation Plans FAQs for Employers

Report all of the FICA that is withheld from both the employee’s and the employee’s former spouse’s payments on the employee’s own Form W-2 (as applicable, included in Boxes 4 and 6).

The IRS eventually provided similar rules for other types of executive compensation, such as stock options and restricted shares.

Conclusion:  An employer faced with paying amounts from a NQDC plan based on agreements arising out of a divorce needs to work closely with human resources and payroll to make sure the payments are properly treated under the IRS guidance. The company may also need to work closely with the payroll company to make sure the right amounts are reported on the correct forms.

 

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...