Is this a prohibited toggle?

[HTO]

A deferred compensation plan allows a company's directors to elect to defer a portion of their director fees.  The deferred amounts are distributed upon the earlier of a 409A change of control or a director's separation from service.  At the time of an election to defer, the director can elect to receive payments upon a separation from service either in a lump sum or in annual installments.  The plan provides that if installments are elected, the number of annual installments will equal the number of full calendar years the director was a participant in the plan, up to 10 installments.  So, for example, if a director has a separation from service after 6 years in the plan, he or she will receive 6 annual installments, and if the director has a separation from service after 12 years in the plan, he or she will receive 10 annual installments.

This seems like a violation of the toggle rule because it provides for different times and forms of payment for the same 409A payment event, and I don't believe that any of the exceptions apply, but I'd love to entertain an argument that it's permissible.

[M Gerald]

I agree that this this sounds like it violates the toggle rule. It probably would be permissible if each year of service simply adds another installment without changing the value of the prior installments, e.g., going from $600,000 over 6 equal annual installments to $1 million over 10 equal annual installments.   

[gc@chimentowebb.com]

Seems OK to me, espeically if each installment is a separate payment. Year 1 - I earn a right to a payment at separation. Year 2 - I earn a right to a second payment paid in the 2nd year after termination. Year 3 - I earn a right to third payment 3 years after separation, etc., etc. In other words, each year of service creates a separate deferred payment.