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Permissible Haircut Under Terminating Deferred Comp Plan?
BenefitsLink Message Boards Link to more items from this source
Dec. 7, 2021

"An employer sponsors a nonqualified deferred compensation plan, which it would like to terminate before year-end and begin paying out beginning after 12 months and ending within 24 months in accordance with the plan termination rules. Individual agreements with each of the 3 participants provide for a specified dollar amount to be paid to the participant every year for 10 years beginning when the participant attains age 62. The specified dollar amount will be reduced by 5% in connection with the termination, a reduction all participants are agreeable to, and will sign releases concerning. Is this an exception to the otherwise applicable prohibition against applying a 'haircut' to accelerate payment? Also, can the timing of payouts over the 12-24 month post-termination period vary among the 3 participants (e.g., participant 1 gets a lump sum distribution on 12/31/2022, participant 2 gets a lump sum distribution November 30, 2023 and participant 3 gets a partial distribution on 12/31/2022 and the balance paid on November 30, 2023)?"

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