Employee's "right" to select a retirement date

A SERP of a tax exempt org, provided for vested payment at age 65. Like most such SERPs it was structured as a 457(f) short term deferral. The SERP was later amended to allow the CEO/participant the right to select an earlier vested retirement date, provided it was (A) at least 12 months after the election, and (B) was forfeitable if he resigned prior to that new date.

Allowing a participant this much discretion at first concerned me. However, it is not illegal for employers to accelerate short term deferrals. What is wrong with an employer delegating that power to a covered participant? These are just short term deferrals.

If that does not trigger income tax at the date the power was given the participant, what would be the tax date? Would it be 12 months after the power was granted, i.e. the first day after the 12 months, or would it be the actual date the participant elected if later than 12 months? 

Hmmm. The person who drafted this amendment was in the HR Department and was insensitive to 457(f) but I wonder if this design actually works. My primary concerns are constructive receipt and/or the fact that IRS could consider vesting to be a charade after the first 12 months when the participant has this much control. 

I think like you, I am always hesistant to give anyone, employer or employee, any discretion under 409A.  There isn't an issue regarding implicating the change in election rules because, from your facts, this involves an acceleration of the payment and not a delay.  Under the structure of the change, the employer believes or has been advised that the at least 12 month delay in payment after an election coupled with the forfeiture if resign within that period constitutes a substantial risk of forfeiture for the short term deferral rules.  This appears reasonable but it is not without risk.  This goes back to the question under section 83 of how long must a service period be for purpose of this rule.  Most think a year is reasonable but for many, many years conservative practitioners point to a two-year period as alluded to in the section 83 regs.  This two-year period has been cited in several PLRs issued under 457 (e.g., 9211037).  IRS personnel speaking at a conference I attended several years ago stated that (in his opinion, of course) the two-year rule was a safe-harbor and not necessarily a minimum.  The PLR I parenthetically cite ruled benefits in a 457f plan vested immediately because the service period was less than two years.  So there is a possibility the IRS might not agree on the 12 month period (also, the courts might not either... there is a tax court case out there involving a 12-month resale restriction on some type of property (not a service requirement) where the court held the 12-month period was relatively short and not substantial... people point to that case as support for this two-year rule... not sure if it really applies but its there).  Also, the 12-month period must be for actual work and perhaps not some consultancy period (not a sure loser but a facts and circumstances issue) or where they use vacation for a significant period.  My recollection was that the actual work requirement was problematic under some rulings.