Page 102 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

88 The Complete Guide to Executive Compensation

Elections
Deferral decisions are in compliance if election is made:
• in the year before the year in which services are performed, or
• within 30 days after first becoming eligible, or
• within the six-month period prior to the end of a performance-based compensation
plan of at least 12 months
If the plan permits, the executive may make a decision to delay the deferral as long
as the decision is made not less than 12 months before the first scheduled payout date
and the redeferral is for at least five years after the date scheduled for payout. It would
seem the individual could make such decisions each year if necessary to meet his or her
own needs.
Another possibility that might work is establishing a number of deferral accounts based
on different needs for funds (e.g., college, boat, luxury car, vacation home, or retirement).
Each account would have its own payment date and form of payment (e.g., lump sum or a
string of payments). The accounts would be funded on a combination of percentage and
dollar minimums from each deferral. For example, the college expense account might be set
to recover at least 20 percent of the deferral but no less than $20,000. Therefore, if the
deferred amount were less than $100,000, $20,000 would be credited to this account to be
paid out in installments of one-fourth, one-third, and one-half, and the remainder in the last
year over a four-year period beginning in six years.

Distributions

Distributions that are in compliance with the act are those made at the following times:
• Separation from service (except that key employees defined in Section 416(i) of the
Internal Revenue Code are subject to a six-month payment delay)
• Disabled and unable to perform meaningful work for a continuous period of at least
12 months
• Death
• Date or schedule specified on deferral election date
• Change in ownership of effective control of the corporation
• An unforseeable emergency causing severe financial hardship with amounts limited to
the emergency need
• Termination and liquidation of the plan in accord with terms of the regulations.

Time and form of payment for each payment event must be specified at time of deferral
election.
Plans subject to a “substantial risk of forfeiture” are excluded. The definition includes the
requirement that entitlement is conditioned on future service commitments or related to the
attainment of a prescribed level of earnings, equity value, or initial public offering and that
the possibility of forfeiture is substantial.

Changes
Those changes in time and form of distribution that are in compliance with the act are as
follows: