>Thomas is chairman of the US House Ways and Means Committee. Among the bill’s provisions, according trade group ERIC:
>Section 1091 overhauls rules governing Nonqualified Deferred Compensation (NQDC) arrangements for all deferrals after 2003.
>A. All plans providing for deferral of compensation are included under the bill other than a qualified employer plan and any bona fide vacation leave, sick leave, compensatory time, disability pay or death benefit plan. The bill appears to apply the new rules to severance plans.
>B. For a participant to avoid constructive receipt (requiring immediate taxation) on deferred amounts:
- Payouts must be restricted to separation from service, disability, death, a time specified under the plan, a change in ownership or control of the company, or an unforeseeable emergency.
- For key employees (as defined in IRC sec. 416(i)), payout after separation from service is delayed for six months.
- Under no circumstances can a payout be accelerated, but a payment can be delayed if the election to delay is made more than 12 months before the first payment and the payment is delayed five years.
- An unforeseeable emergency is defined in the bill more narrowly than a hardship under the 401(k) rules.
- Deferral elections must be made during the preceding tax year.
>C. NQDC accumulations cannot be funded through an offshore trust.
>D. Funding of NQDC accumulations cannot occur due to a change in the employer’s financial health. (With this restriction, a rabbi trust would be allowed under the proposed bill.)
E. Deferred amounts must be reported on the employee’s W-2 form.
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