Deferred Compensation News is pleased to provide this Fulcrum Partners report, prepared and originally published by Principal Life, a member of the Principal Financial Group®. With socioeconomic and regulatory landscapes changing day by day and sometimes hour by hour, both plan providers and plan participants are faced with new and unexpected issues. This insightful report provides guidance on numerous aspects of nonqualified deferred compensation plans with regard to issues of the COVID-19 pandemic.
One of the many questions that organizations are asking about COVID-19 and Nonqualified Deferred Compensation Plans has been:
“As a plan sponsor, can I terminate or freeze the plan?
Plans may be terminated under three distinct circumstances defined in regulations: (1) at the discretion of the company; (2) if the company ceases to be a going concern, and (3) in connection with a Change in Control (as defined by regulations under Section 409A).
In the current environment, the termination of a plan at the discretion of a company is the most relevant. A termination at the discretion of the plan sponsor is subject to specific timing rules. If such a termination takes place, all similar plans of the employer (as defined using the Plan Aggregation rules under IRC 409A) must be terminated, as well. However, such a termination is not allowed if proximate to a downturn in the financial health of the company. Plan sponsors wanting to explore this option should discuss with their counsel. Deferral elections cease upon a discretionary plan termination.
Due to the irrevocability of deferral elections, as a practical matter, plans cannot be frozen until the next calendar year.”
You can find the answer to many other timely questions by following this link to view or download the full report: “Answering questions about COVID-19 nonqualified deferred compensation plans.”
As noted in the report, while relief from Congress for the financial impact of COVID-19, specific to IRC Section 409A, has not been provided, the IRS has generally been reasonable in uncertain times.
Additional related updates on COVID-19 and Nonqualified Deferred Compensation Plans:
- Rabbi Trusts in the COVID-19 Economy, a Whitepaper PLUS FAQs
- Does Furlough Constitute a Separation from Service Under IRC 409A
- COVID-19 and the Unforeseen Financial Emergency Under IRC 409A
- Report Published on Rabbi Trusts During Times of Economic Uncertainty
- Impact of the COVID-19 Pandemic on Your Medical and Retirement Plans
#COVID19 #409A #nonqualifieddeferredcompensation #NQDC #plansponsor
Principal is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC. Unless otherwise noted, VAI/VSI, LSF and BDO Alliance USA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.
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