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March 03, 2002 at 07:00 PM
When the agreement is made prior to services being rendered, there are certain requirements that must be met in order to receive a favorable IRS letter ruling. These requirements are:
–The nonqualified plan provides that the election to defer compensation must be made before the beginning of the “period of service” for which the compensation is payable. In general, this means the election must be made before the beginning of the calendar year and this is regardless of any forfeiture provisions contained in the plan.
–In the year in which the plan is first implemented or the year in which an employee first becomes eligible to participate, the election to defer may be made within 30 days after the plan is effective or the employee becomes eligible, so long as the election to defer is for compensation for services after the date of the election.
–If any deferral election may be made by an employee subsequent to the beginning of the “period of service” the plan must define the time and method for payment of deferred compensation for each event that entitles an employee to receive benefits (such as retirement, disability, etc.).
–The plan must define the time and method for payment of deferred compensation for each event that entitles an employee to receive benefits (such as retirement, disability, etc.).
