NQDC and Securities / Blue Sky laws

We have a very standard NQDC Plan.  Section 409A-compliant.  Elective deferrals and employer contributions.

Are there any risks that a standard NQDC Plan can make the company/sponsor subject to any Securities Law or Blue Sky Law (Federal/State) requirements?

Yes. Some states in particular look at NQDC as investment contracts and don’t have exemptions available generally and some of the “indirect” exemptions don’t always apply. The program should always be evaluated by someone with securities law expertise.

Yes, a nonqualified deferred compensation plan might result in a security under one or several Federal laws and State laws. Further, such a security might not be an exempt-from-registration security.

For some kinds of obligations, rights, or interests, the analysis often varies with which of the several Federal securities laws one seeks to apply or avoid.

About plans for a nongovernmental tax-exempt organization’s employees, 457 Answer Book devotes a whole chapter, Application of Federal Securities Law to 457 Plans, to these questions. Likewise, some treatises on deferred compensation of a nonexempt organization’s employees discuss the topic.

For an unfunded plan, the SEC’s staff might see the employer as the security’s issuer.

An employer might want its securities lawyers’ written opinion about whether an interest is a security, and about whether the security is exempt from registration.

This is not advice to anyone.