Life & Job Events
1. Who cannot participate in nonqualified deferred compensation plans?
Executives below the level of senior management
Consultants and contractors
2. When must salary-deferral elections be made?
During the year before the compensation will be earned
During the year when the compensation will be earned
During the year after the compensation has been earned
During the first quarter of the year when the compensation will be earned
3. If you have just been hired or have just become eligible for the NQDC plan, how soon do you need to enroll and make deferral elections?
Within 10 days
Within 30 days
Within 90 days
There is no time limit
4. For established NQDC participants (i.e. not newly eligible), which are the most common months of the year for making deferral elections?
January and February
March and April
September and October
November and December
5. For performance-based compensation, how long before the end of the performance period must a deferral election occur?
At least 3 months
At least 6 months
At least 12 months
By the end of the prior calendar year
6. Which of the following is usually not decided when you enroll?
The percentage of compensation you want to defer, and the distribution dates
Whether to receive distributions in a lump sum or by installments
Any beneficiaries of your deferred compensation
All of the above are usually decided at enrollment
7. What types of compensation can you elect to defer?
All of the above, if your plan permits them
8. If permitted by your NQDC plan, what type of stock compensation can you elect to defer?
Nonqualified stock options
Restricted stock units
Stock compensation is not eligible for deferral
9. For which of the following may your NQDC plan offer you an election on the timing or form of payment for a distribution?
Separation from service (i.e. job loss)
A future date when you expect to be still working for the company
All of the above
10. Can you change a distribution election?
Yes, at least 12 months before the scheduled date, if your plan allows changes
Yes, at least 6 months before the scheduled date, if your plan allows changes
No, changes of distribution elections are never permitted
Yes, at any time before the originally scheduled day of your distribution
11. If you change a distribution election, for how long must you redefer?
At least 12 months after the previously scheduled distribution date
At least 2 years after the previously scheduled distribution date
At least 5 years after the previously scheduled distribution date
At least 7 years after the previously scheduled distribution date
12. Which of the following is a risk you must understand before you enroll in a nonqualified deferred compensation plan?
You could lose your deferred compensation in a corporate bankruptcy
Your company may fail to comply with IRC Section 409A, exposing you (not the company) to tax penalties
Your company may be acquired and its buyer may end the NQDC plan before your elected distribution dates
All of the above
13. When do you elect a tax-withholding rate to apply to your distributions?
At the time of enrollment
The rate is not subject to election
During the year before distributions
Your Form W-4 always determines the rate
14. After you defer compensation, can you borrow money from your NQDC account without violating the rules of Section 409A?
Never, as this would show too much control over the deferred money
In certain circumstances, but only if you get formal written approval from the IRS
Yes, borrowing against the NQDC account is a routine practice for plan participants
This depends on company policy
15. Can you change the deferral elections if you involuntarily lose your job?
Yes, you can flexibly change the election, as involuntary job loss exempts you from the requirements of IRC Section 409A
Only if (1) your NQDC plan permits this and (2) all of the redeferral rules under IRC Section 409A are met
Only if (1) you gain formal written approval from the IRS and (2) your company uses a secular trust
Only if the job loss occurs in a change of control (e.g. a merger or acquisition)
Life & Job Events
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