Can I Amend Plan to Fix Drafting Errors?

A client has a NQDC Plan that they wanted to be triggered by change in control.  The change in control they were expecting is occurring, but we reviewed it and they drafted the change in control definition poorly (it's 409A compliance, but too narrow and it doesn't cover this transaction).  So, the payment that was supposed to be triggered by this transaction isn't going to be triggered.  

They would like to do a corrective amendment to expand the definition of "change in control" to cover this transaction.  Note: the transaction falls within a 409A-compliant definition, so that is not an issue, it just doesn't fall within the plan definition.

I told them changing the definition would be an impermissible acceleration.  Do you all agree, or is there some wiggle room here?

I should note:  I don't think this falls within the correction procedure, since the definition is currently 409A compliant.

Consider thinking about it this way:

If the employer were seeking the Internal Revenue Service’s letter ruling that the change in the employer’s obligation to pay deferred compensation is not an acceleration but rather is no more than a reformation of the written plan to state what was both parties’ actual intent when they made their contract, what “clear and convincing evidence” would you show to prove what had been the parties’ true intent? Would that evidence persuade an IRS reviewer?

If the evidence wouldn’t persuade an IRS reviewer, or doesn’t persuade you, that tells you some useful information about how to shape your advice.

This is not advice to anyone.

As Peter states, unless you have some clear and convincing evidence of the intent and that evidence existed at the time the document was drafted, any change in the definition likely will be viewed an impermissible modification of the payment event.  Flexibility exists with regard to a CIC definition but only at the drafting stage.  Once the Plan is effective, the definition must provide a clear and objective change in control description, and the determination as to whether a CIC event has occurred must not be subjective. Section 409A penalties may apply if the plan's CIC criteria are not followed.  If the definition is broadened, a new payment event is being put in place that can only apply to future deferrals.  This is what we advised a client back in 2021.  The client believed that the definition was too narrow so it adopted a new plan to expand the CIC definition (previously a CIC only occurred if the parent company was sold, etc.; subsidiaries were not part of the relevant corporation so that a CIC would not occur with regard to a subsidiary if only the subsidiary was sold).  The old plan was essentially frozen and retained the old narrow CIC definition.  Then this July 1, the sale of a subsidiary of the client's was closed, triggering a CIC under the new plan but not under the old plan.  The plan participants are upset that the CIC was triggered under the new plan (happy not triggered under old plan).  They don't want the money or tax hit now and would rather leave the money with the old parent.  Just shows you can't always tell what the participants want.