Executive Benefits Network’s specialized team will not only work with each client to administer the best plan for the client’s needs, Executive Benefits Network will also ensure the plan follows all applicable rules and regulations. One such regulation is § 409A.
The principle requirements of § 409A are:
- The Nonqualified Deferred Compensation Plan must be in writing.
- Initial deferral elections:
- The employee must obey certain rules regarding initial deferral elections and must make the election to defer irrevocably before his or her tax year begins.
- When the employee first becomes eligible to participate in the plan, he or she has 30 days after first becoming eligible to elect, but the election applies only to amounts earned after the election.
- If there is a performance-based compensation based on services performed for at least 12 months, the election to defer the bonus must be made at least six months before that 12 month period ends.
- Permissible Pay Triggers—The Nonqualified Deferred Compensation Plan agreement is permitted to provide for payment to the employee only upon certain events. The permitted events are:
- Specified time or a fixed schedule
- Separation from service
- Change of control of employer
- Unforeseeable emergency
- Change in financial health of employer is not a permissible payment trigger.
- Payments generally cannot be accelerated.
- But payments can be delayed, and their form can be changed. These are called “subsequent deferral elections”.