Freezing employer SERP contributions mid-year

Employer has committed to a 20% contribution to a defined contribution SERP. The time and mode of payment are fixed in the document. 

The employer wishes to freeze contributions mid-year, and the plan document permits this. The reason is that the employer intends to substitute 409A-exempt stock options and bounuses for the amounts it would have contributed to the SERP. 

I don't see a problem with this, but would appreciate  input:

1. Substitution is not really the issue. The accrued amounts will be paid as scheduled and the employees are not relinquishing rights. As stated, the plan allows for a freeze with advance notice.

2. Changing a deferral amount mid year should also not be a problem. Although mid-year changes are prohibited for elective deferrals, absent hardship, this does not seem to apply to plans funded solely with contributions by the service recipient.

Thoughts? 

So long as the "substitution" of the options/bonuses is not for amounts already accrued under the SERP, I do not see a 409A problem. 

I agree, Former Esq. Thanks.

There will not be a substitution for any amount for which the participant has a legal right, because that would then be a "relinquishment" of rights by a participant, and a prohibited substitution.

Let's complicate this a bit further. In addition to 20% of base salary, the SERP presently provides for a 20% contribution of any bonus. In this case, bonuses ae accrued and paid in the following year by March 15. 

So, if the company were to freeze the SERP on June 30, 2021 and to discontinue future 20% base salary contributions, what happens with the bonus paid on March 15, 2022 with respect to 2021 services? Does the employer have to contribute a pro-rata portion of the 20% (i.e., 10% for a June 30, 2021 freeze) or the full 20% or nothing at all? For an service provider elective deferral, the full 20% would be required, but for a service recipient contribution, I'm thinking 10% (not 20%) would be required, even though the bonus for 2021 services is not known on June 30, 2021. I wish the answer could be zero.

On 1/21/2021 at 5:56 AM, gc@chimentowebb.com said:

So, if the company were to freeze the SERP on June 30, 2021 and to discontinue future 20% base salary contributions, what happens with the bonus paid on March 15, 2022 with respect to 2021 services?

I think the answer ultimately lies in the wording/interpretation of the document (or at least what is implied).  In a vacuum, I can see arguments for 0%, 10% and 20%.