Has the IRS set forth any guidelines concerning a participant's ability to change a distribution option under
an unfunded nonqualified deferred comp plan. The current plan document states that a payout election may be changed if notice is provided to the Plan at least 90 days prior to separation. Is it permissable to amend the plan to reduce the notice period to 30 days prior to separation and not trigger any constructive receipt issues.

Although the IRS isn't crazy about the idea, the Tax Courts have repeatedly allowed for such changes so long as the benefit has not yet been constructively received -- with 30 days minimum notice being a sound rule of thumb. The seminal case is Martin v. Commissioner, 96 TC 814 (1991). Despite many subsequent court losses under similar facts and circumstances, the Service has not officially acquiesced to the decision. However, I do not believe that they are likely to challenge anything unless the facts and circumstances are generally out of line with the Martin decision.

I know many employers permit such election changes but what are the "many" Tax Court cases that permit this? The Martin case is frankly a bit indecipherable, Viet II was part of re-negotiated employment arrangement where the employer received consideration, Oates dealt with unearned renewal commissions . . . I know I might be a bit conservative and in the minority but I've always believed practioners read more into these cases than there is.

That said, one can always cite the section 457 regs (interpreting the same language in section 457 as the section 451 regs) and Metcalfe (assuming the deferral election is subject to employer consent).

[/B][/QUOTE]According to the IRS ruling position,you must make your election before service in respect to which the compensation is earned is rendered;or,if there is no election, the actual distribution is spelled out completely in the plan document,giving the employee no choice. Here,the IRS ruling position and the courts' position on the constructive receipt are very much at odds. The IRS, as mentioned, would say that the specifications as to the distribution must be made before the service period and that no elections later than that, meaning so-called "secondary elections",may be made. The courts have consistently taken a contray view and specify that "secondary elections",which were made after service period has begun but before the payment due date, are acceptable. As a result,employers are taking advantage of the "secondary election" flexibility, although I would caution against being too aggressive.
The IRS, in recognizing the gross disparity between its ruling position and that of the courts, has indicated it will revisit the "secondary election" issue and possibly come out with something that is more flexible than its current ruling. We see many employers, based on case law, allow elections to be made one year in advance of the otherwise due date. I feel, 30 days may be a bit aggressive. CBC/CRG's servey of Fortune 1000 companies (see http://www.crgworld.com) show the Change in Distribution Election, >More than one year 20%,One Year 25%,One Month 1%,up to one day 4%,day of retirement 10% no subsequent change 36%, and other 4%.

My personal view is that as long as the "second election" is made prior to the calendar year in which the benefit would otherwise become payable to the participant (absent the "second election"), there is no constructive receipt. That is because the constructive receipt doctrine (as applied to individuals) is based on the calendar year.

I agree with you, this is what most of our clients do.

All points very well taken, however, who amongst us wouldn't gladly take on the Service in court on a valid change in deferral election made more than 30 days prior to any right to a distribution? The doctrine of constructive receipt isn't that complex, and, in light of Martin the Service's claimed position simply doesn't hold water. Which is precisely why, I am fairly certain, you won't find them taking the position in any case any time soon.