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Combining Defined Benefit and Defined Contribution Plans

Creative plan design can help reduce expenses and achieve contribution goals for owners.

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. 

Focus on Compliance: Timing of Bonus Deferral Elections

Internal Revenue Code Section 409A (“IRC 409A”) requiresthat 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.

Financial Accounting Treatment of Non-Qualified Deferred Compensation Plans

Under generally accepted accounting principles (“GAAP”), the assets and liabilities associated with a Non-Qualified Deferred Compensation arrangement are accounted for and reported independently. This memorandum discusses the general accounting treatment for both.

Cash Management Considerations for ESOP Repurchase Obligations

Funding a plan with company stock can be a great finance and employee motivational tool. But eventually, the piper must be paid. Employees will eventually terminate employment and want a cash payout from the ESOP.

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

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. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and Newport Group Consulting, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and Newport Group Consulting, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment advisers. When offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer. Trust and custody services provided by Newport Trust Company, a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc.