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Terminating and Liquidating a Non-Qualified Deferred Compensation Plan

Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") requires deferred compensation to be paid under written agreements specifying both the time when payments commence and the form of payment. Section 409A prohibits earlier payment under an "anti-acceleration" rule. 

Newport Investment Management Due Diligence Process

Newport believes that investment managers should be selected and monitored using a well-defined process. Our dedicated team of research analysts combines quantitative analysis and qualitative research to help identify investment managers we believe will provide superior long-term results.

Hiring an Independent Fiduciary for a 401(k) Plan Company Stock Fund

Common Questions from Plan Sponsors and Plan Committees

Rabbi Trusts

Employers that sponsor non-qualified deferred compensation plans may choose to set aside funds in order to create a pool of assets that can be used to pay benefits that have been promised to executives.

Focus on Compliance: Timing of Bonus Deferral Elections

Internal Revenue Code Section 409A (“IRC 409A”) requires that elections to defer compensation be made only at specified times. An election to defer compensation that is made later than permitted under IRC 409A is not valid, and would preclude the intended deferral of income.

Focus on Compliance: Mid-Year Enrollments

Internal Revenue Code Section 409A (“IRC 409A”) permits employees who first become eligible to participate in a non-qualified plan during the middle of the year to enroll within 30 days of initial eligibility. This rule may be beneficial to employees who are first hired in – or promoted to an eligible position during the middle of a tax year. However, care must be taken to ensure the rule is properly applied.

Focus on Compliance: Expatriates

Multinational corporations frequently transfer employees to work in foreign countries for extended periods. Expatriation raises questions regarding the employee’s status as a participant in the company’s non-qualified deferred compensation plan. Legislation adopted in 2008 (the Heroes Earnings Assistance and Tax Relief Act) may also require that deferred compensation benefits be included in income on the expatriation date.

Investment Manager Due Diligence Process

Newport Group believes that investment managers should be selected and monitored using a well-defined process. Our dedicated team of research analysts combines both quantitative analysis and qualitative research in order to identify investment managers we believe will provide superior long-term performance.

Focus on Compliance: Applying Non-Qualified Plan Deferral Elections to the Final Payroll Period for the Year

Under Code Section 409A, an annual salary deferral election generally applies to all salary earned during the calendar year. If this concept were to apply to salary earned during the last payroll period of the year that crosses into the next year, human resources would need to  identify the salary earned on or before December 31 and the salary earned after December 31, apply the appropriate deferral elections to each portion, (iii) communicate the two components of deferred compensation to the plan’s record keeper in order to assign the appropriate payment schedule to each portion and then (iv) communicate the combined deferral amount to payroll for processing.

Non-Qualified Plan Distributions: State Income Tax Sourcing Rules

Are distributions from Non-Qualified Deferred Compensation Plans subject to state income "source" tax (i.e. can the state in which the income was earned impose its state income tax on the distributions from the plan, even though the recipient resides in a different state when reeicing the distribution)? The answer is "yes" unless the distribution meets one of two requirements.

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Newport Group, Inc. (“NGI”), an Ascensus Company, and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services.

Securities are offered through Ascensus Broker Dealer Services, LLC (“ABDS”), member FINRA/SIPC. Securities in California are offered under the d/b/a Ascensus Corporate Insurance Solutions. Other insurance products may be offered by NGI. For more information, please visit - www.ascensus.com

Investment Advisory and fiduciary consulting services are offered through Newport Group Consulting, LLC, an SEC registered investment adviser and subsidiary of NGI. For more information about Newport Group Consulting and its services, please visit newportgroup.com or refer to our Form ADV Part 2, which is available by contacting us at 407-333-2905 or adviserinfo.sec.gov.

Newport Trust Company is a New Hampshire state-chartered trust company and wholly owned subsidiary of NGI. Newport Trust Company provides independent fiduciary and trustee services for employee benefit plans.

The views expressed herein are those of NGI and are current only through the date indicated. These views are subject to change at any time based upon market or other conditions, and NGI disclaims any responsibility to revise these materials to reflect updated views. These views may not be relied upon as investment advice and, because investment decisions for NGI are based on many factors, may not be relied upon as an indication of trading intent.