Alternatives to NQDC lump sum distribution?

I went through the forum and thanks for the good information.

Here is the situation: Company A has NQDC (non-qualified deferred compensation) plan, and was acquired by company B. Company B has no such plan and wants to terminate the plan and do a lump sum distribution to plan participants. Are there alternatives to the lump sum option to reduce the tax liabilities for the participants?

Thank you for comments.

Similar to QPs, first thing to do is read the document.

Generally, if you terminate the plan in connection with the CIC (30 days before closing through 12 months following closing), all distributions must be paid within 12 months of plan termination. This gives you some - but not much - time to stretch out payments.

For example, if the CIC occurred today, you could terminate the plan on, say, January 10, 2026, pay half the account balances during 2026, then pay the other half on, say, January 8, 2027. (The participants cannot have control over when they are paid.) That at least covers two taxable years, and gets you out of the year of the CIC if any of the plan participants got payouts at closing that boosted their income in 2025. 

Outside of that, there's no possibility to roll over or pay longer installments, unless someone knows something I don't. Anything that would stretch payment out further (e.g., buying an annuity) would not help from a tax perspective. 

Don't overlook how "stretched" payments might affect the FICA tax due.

EBECatty. This is the rule for termination following a CIC (§ 1.409A-3(j)(4)(ix)(B)).  They could also utilize the termination of all similar plans as set forth in -3(j)(4)(ix)(C).  The requirements to use that would be that the termination does not occur proximate to a downturn in the company's financial health, all similar nonqual plans terminated, no payments within 12 months of when company takes all necessary action to irrevocably terminate the plan (other than payments otherwise payable if no termination), all payments within 24 months of that date, and no new similar nonqual plans for 3 years.

That said, not sure you can really permit participants to "stretch" things out... a.  I have not researched this but I would think the IRS would frown on permitting a participant to elect when they could receive their payments when the payments could overlap even just one year.  For e.g., if a plan provides for payment upon a CIC then it could specify payment in the calendar year (or shorter period within the calendar year, including a particular day, like the closing of the CIC transaction) in which the payment will be made or a period in which the payment may be made that is no longer than 90 days, whether or not it begins and ends in different calendar years (so long as the employee does not have discretion to determine the year of payment) § 1.409A-3(b)(i)(1)(vi).  Usually, if the second alternative is used the plan will say something to the effect of if the 90 day period overlaps two years then it will be paid in the later year.  So the conservative view may be that everyone one is paid later with no elections, but that may not be beneficial to ALL participants.

David.  Not sure if "stretched" is right here... seems like it should be "any accelerated vesting" instead..  depends on the type of plan, etc.

Just my thoughts so DO NOT take my ramblings as advice...