As long as plan assets were owned by the business and carried as a general unsecured asset, subject to the claims of the business's general creditors, an SROF applied.
83, the economic benefit doctrine, the assignment of income doctrine or any other still applicable provision of the Code or common law tax doctrine." Unfortunately, the drafters of 409A and its regulations did not make as clear the purpose and function of 409A's definition of SROF.
Congress directed the Secretary of the Treasury, in Section 409A(e), to prescribe such regulations, "as may be necessary or appropriate to carry out the purposes" of the new law--including a new definition of a SROF. Treasury and the Service, in the preamble to the final regulations, state that they rejected the suggestion of several commentators that the Section 83 definition of SROF be adopted for 409A.
409A's SROF is essentially the same as Section 83's SROF.
As long as the receipt of the transferred property "is conditioned on the performance of substantial future services by any person or on the occurrence of a condition related to a purpose of the compensation," the economic benefit is subject to an SROF and is not income taxable.
However, D's rights to the deferred compensation are subject to an SROF that he maintain his status as a full-time P employee for the next 10 years, to vest.
This is relevant not only for annual bonuses determined on the basis of productivity, but also for long-term deferrals when the payout occurs shortly after the SROF lapses.
457, the deferred benefits must be continually subject to an SROF. The plan provides that the executives will vest in the deferred benefits on attaining age 62 while still in A's fulltime employ and will be paid in a lump sum within 60 days of vesting.
409A, because the complete payout will occur well within 2 1/2 months of the end of the vesting year (before the vesting date, the deferred compensation had been continually subject to an SROF).
Amounts deferred each year will be immediately taxable to the employer to the extent that such amounts are not subject to an SROF. The SROF for section 457 purposes has the same meaning as under IRC section 83.
Treasury Regulations section 1.83-3(c) gives examples of SROF situations in a postretirement setting.
The new law under section 409A imposes a significant tax acceleration and penalty to the extent that the DCA experiences a "plan failure" and the plan benefits to be paid in the future are vested (not subject to an SROF) in that year.