Author notes potential 409A issue for QSERPS by virtue of removal of risk of forfeiture.
"These plans must be constructed under IRC §409A rules, which includes a requirement that the SERP funds remain an asset of the company, subject to substantial risk of forfeiture...Moving monies from non-qualified plans into qualified plans provides an immediate tax break for the company, and, in essence, removes the risk and virtually guarantees payment of the benefit to the executives. As deferred compensation, the executive maintains the tax-deferral advantage associated with the benefit, without the inherent risk of forfeiture. It will be interesting to see how this practice relates to 409A rules on deferrals."
Thursday, August 28, 2008
Tuesday, August 26, 2008
Amending "Good Reason" at the last Minute - From CompensationStandards Blog
Interesting discussion on amending the definition of "good reason." Interesting difference of opinion.
"Max correctly notes that this paragraph of the Notice keys the ability to reform the good reason definition on whether the right to payment is “subject to a substantial risk of forfeiture” – not on whether the good reason condition is tantamount to an “involuntary termination” condition under Section 409A. He also points out that the final regulations (§1.409A-1(d)(1)) say that if a right to payment is conditioned on “involuntary termination” it will be subject to a “substantial risk of forfeiture” -- but do not say the converse – i.e., that if a right to payment is not conditioned on involuntary termination it is not subject to a substantial risk of forfeiture (because there other ways to be subject to a substantial risk of forfeiture).
Given that these are two distinct standards (with involuntary termination being a subset of substantial risk of forfeiture), he concludes that as long as the right to payment is still subject to a substantial risk of forfeiture, you can fix at will (for the rest of 2008)."
"Max correctly notes that this paragraph of the Notice keys the ability to reform the good reason definition on whether the right to payment is “subject to a substantial risk of forfeiture” – not on whether the good reason condition is tantamount to an “involuntary termination” condition under Section 409A. He also points out that the final regulations (§1.409A-1(d)(1)) say that if a right to payment is conditioned on “involuntary termination” it will be subject to a “substantial risk of forfeiture” -- but do not say the converse – i.e., that if a right to payment is not conditioned on involuntary termination it is not subject to a substantial risk of forfeiture (because there other ways to be subject to a substantial risk of forfeiture).
Given that these are two distinct standards (with involuntary termination being a subset of substantial risk of forfeiture), he concludes that as long as the right to payment is still subject to a substantial risk of forfeiture, you can fix at will (for the rest of 2008)."
Monday, August 25, 2008
More From XremeERISA Blogger - Anti-Toggling Rule
Discussion of Anti-Toggling Rule and providing for alternative time and form of payments.
"Under what have come to be known as the anti-"toggling" rules (of Section 1.409A-3(c)), you can generally (unless an exception applies) only have one time and form of payment per particular type of cap-A triggering event.
There may be some emerging informal evidence (rely at your own risk) that, showing some flexibility, Treasury personnel are gravitating to what I'll call a permissible "subset" analysis."
"Under what have come to be known as the anti-"toggling" rules (of Section 1.409A-3(c)), you can generally (unless an exception applies) only have one time and form of payment per particular type of cap-A triggering event.
There may be some emerging informal evidence (rely at your own risk) that, showing some flexibility, Treasury personnel are gravitating to what I'll call a permissible "subset" analysis."
Monday, August 18, 2008
Xtreme ERISA Blog Discusses Unclear Short Term Deferral Issue
Interesting Article Regarding Olympics and Short Term Deferral Rules. Unclear whether this approach is permitted under the regulations.
"So what of a stream of severance payments? If one is terminated on 12/31, only two-and-a-half months' of payments would be made within the S-TD period? Does that possibility doom all but two-and-a-half months' of payments to the Curse of Cap-A?
The answer seems a resounding "no." Under the Regulations as technically corrected, the focus is on whether vesting could occur too long before payment or, stated conversely, whether payment is contemplated to be deferred by too much after a possible vesting event. The focus is not on whether a payment stream might be other than the one that it is. Essentially, you test your stream of payments as it runs, not as it may run. Thus, if the termination is in fact early enough in the year, all of the payments could be S-TDs."
"So what of a stream of severance payments? If one is terminated on 12/31, only two-and-a-half months' of payments would be made within the S-TD period? Does that possibility doom all but two-and-a-half months' of payments to the Curse of Cap-A?
The answer seems a resounding "no." Under the Regulations as technically corrected, the focus is on whether vesting could occur too long before payment or, stated conversely, whether payment is contemplated to be deferred by too much after a possible vesting event. The focus is not on whether a payment stream might be other than the one that it is. Essentially, you test your stream of payments as it runs, not as it may run. Thus, if the termination is in fact early enough in the year, all of the payments could be S-TDs."
Friday, August 8, 2008
Article on 409A Valuations from Quist Valuation
Article relating to 409A valuations for start-up companies.
"The impact and pressure to appropriately price equity grants has just begun. While many companies will continue to price stock options using their own internal expertise, the proposed IRC 409A rules have created a signficant demand for independent valuations. Numerous law firms have concluded that the Independent Appraisal Presumption, which is a valuation performed by a qualified indepedent appraiser is the clearest presumption available under the regulations and provides the best protection against the consequences of IRC 409A."
"The impact and pressure to appropriately price equity grants has just begun. While many companies will continue to price stock options using their own internal expertise, the proposed IRC 409A rules have created a signficant demand for independent valuations. Numerous law firms have concluded that the Independent Appraisal Presumption, which is a valuation performed by a qualified indepedent appraiser is the clearest presumption available under the regulations and provides the best protection against the consequences of IRC 409A."
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