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Item O3 03 BOARD OF COUNTY COMMISSIONERS COUNTY of MONROE �� i Mayor Holly Merrill Raschein,District 5 The Florida Keys Mayor Pro Tern James K.Scholl,District 3 Craig Cates,District 1 Michelle Lincoln,District 2 David Rice,District 4 Board of County Commissioners Meeting February 21, 2024 Agenda Item Number: 03 2023-2110 BULK ITEM: No DEPARTMENT: County Attorney TIME APPROXIMATE: STAFF CONTACT: Cynthia Hall No AGENDA ITEM WORDING: Approval of resolution approving Monroe County Administrative Instruction 4715.6, setting policy regarding the Monroe County post-employment volunteer program as applied to FRS retirees. ITEM BACKGROUND: The purpose of this agenda item is to request BOCC approval to a post-employment volunteer program, as required by F.S. 121.091(15), which states that the Employer may establish post-employment volunteer programs for Florida Retirement System(FRS)retirees who wish to provide civic, charitable, and humanitarian services on a volunteer basis to Monroe County. In July 2023, the Florida legislature passed Chapter 2023-316, Laws of Florida. F.S. 121.021 provides that an employee must terminate from employment in order to receive benefits from the Florida Retirement System(FRS), and that the termination is void if the retiree is hired by any FRS employer during a specified period. The new law, which took effect July 1, 2023, amended F.S. 121.021 and F.S. 121.091 to provide that a person who has retired from FRS may provide volunteer services to an FRS employer without violating the provision of the law requiring termination from employment. Ch. 2023- 316 also states that employers may establish postemployment volunteer programs to allow retirees to provide civic, charitable, and humanitarian services during the first 12 calendar months following retirement without causing the retiree to violate the requirements concerning termination of employment contained in F.S. 121.021 and an IRS regulation also defining termination from employment, 26 C.F.R. § 1.409A-1(h)(1)(ii). F.S. 121.091(15) ("Volunteer Services") states that the volunteer program established by the FRS employer must meet all of the following six (6) criteria: (a) Before the date of retirement, there was no agreement or understanding between the employer and the retiree that the retiree would provide any service for the employer. (b) The employer or a third party may not provide any form of compensation, including any cash 2848 equivalents, to a volunteer for his or her volunteer service. (c) Except as otherwise provided in law, a volunteer may not be provided any employee benefits, including health or life insurance benefits. However, a volunteer may be provided certain perquisites necessary for, and for the limited purpose of, completing tasks associated with the volunteer program, such as an assigned uniform or the provision of equipment. (d) The number of volunteer hours per week, including training hours, that the volunteer may provide is no more than 20 percent of the number of hours that the volunteer was expected to work per week before his or her date of retirement. (e) There is a clear distinction between the duties of a volunteer and the duties of an employee. (f) The schedule of a volunteer, including the number of hours volunteered and the number and type of assignments for which he or she agrees to volunteer, is controlled by the volunteer. (g) The employer and the retiree are both required to maintain adequate records to document adherence to the criteria listed in this subsection. The records must be made available to the department or state board upon request. Monroe County Administrative Instruction 4715.6 ("Professional Volunteer in County Service") includes provisions stating that FRS retirees who wish to volunteer with the County must adhere to the guidelines in F.S. 121.091. The Resolution also directs the Employee Services Department to come with appropriate forms and a procedure in order to comply with F.S. 121.091(15)(g), which states that the employer and the retiree are required to maintain adequate records to document adherence to the criteria listed in F.S. 121.091(15)(a)-(f). PREVIOUS RELEVANT BOCC ACTION: N/A INSURANCE REQUIRED: No CONTRACT/AGREEMENT CHANGES: N/A STAFF RECOMMENDATION: Approval. DOCUMENTATION: 4715.6 Professional Volunteer in County Service.pdf Resolution -2024, approving Admin Instruction 4715.6 (Monroe County post-employment volunteer program).pdf F.S. 121.091.pdf Ch 2023-316 FRS.pdf 26 CFR 1.409A-1 Definitions and covered plans.pdf 2849 FINANCIAL IMPACT: None 2850 "rm'vq TM BOARD OF COUNTY COMMISSIONERS r ��IVV aIVIPI� �, Mayor Craig Cates,District 1 County of Monroe f � Mayor Pro Tem Holly Merrill Raschein,District 5 Michelle Lincoln,District 2 The Floflda Keys James K.Scholl,District 3 David Rice,District 4 The Historic GATO Cigar Factory 1100 Simonton Street, 2nd Floor Key West, FL 33040 OFFICE of the COUNTY ADMINISTRATOR Key West, Florida MONROE COUNTY ADMINISTRATIVE INSTRUCTION 4715.6 Date: July 14, 2023 Subject: Professional Volunteer in County Service Reference: (A) Chapter 110 Florida Statutes (B) Chapter 121.091 Florida Statutes Enclosure: (1) Monroe County Volunteer Application Form (2) Florida Retirement System Volunteer Services Outline Effective Date: Immediately (1) Background: There are most probably many people residing in Monroe County possessing specialized skills and expertise who could be motivated to make voluntary contributions of their time and energies for the public good. It is therefore incumbent upon the County Administration to establish plans and procedures to develop meaningful opportunities for volunteers to participate in Monroe County programs and activities.The established plans and procedures will include provisions for utilizing services from Florida Retirement System volunteers as outlined in Section 121.091(15), Florida Statutes, adopted and made effective July 1, 2023. (2) Purpose: To establish a program for the identification, recruitment,training, and utilization of volunteers to assist in programs and projects falling within the purview of the County Administrator. (3) Cancellation: This instruction is to remain continuously in effect unless specifically revised or canceled. (4) Instructions: A. Enclosure (1) is to be utilized for identifying and recording all prospective Monroe County Civic Volunteer Corps members. 1 2851 (5) Action: A. All employees are requested to actively recruit prospective private citizens for the Civic Volunteer Corps. B. Enclosure (1) is to be completed for all identified volunteers and maintained by the participating departments. C. Volunteers may be subject to background checks and DL Checks. D. Any Florida Retirement System retirees who wish to volunteer with Monroe County must adhere to the guidelines established in Enclosure (2)which references Section 121.091, Florida Statutes. E. Department Heads shall notify Human Resources to conduct a search of registration information regarding sexual predators and sexual offenders before placing the individual in a position to volunteer at a park, playground, daycare center, or other place where children regularly congregate to comply with Florida Statute 943.04351. F. Monroe County is a Drug-Free Workplace and volunteers are subject to the Monroe County Drug-Free Workplace Policy and Work rules. G. It is anticipated that volunteers will usually provide for their own transportation and per diem expenses. However,there may be circumstances where this would have a negative impact upon the volunteer's capability to give of their personal services to the County. H. Departments currently utilizing volunteers are Airports, County Libraries, Nutrition Services, Parks and Beaches, and Extension Services in various capacities. Every Department that wishes to provide incidental reimbursement for transportation costs, lodging, and subsistence, as the department deems necessary to assist volunteers in performing their functions must obtain prior approval from the County Administrator/Assistant County Administrator. Such reimbursements, if approved, must comply with the provisions of Florida Statutes 110.504 and the Monroe County Code. Roman Digitally signed by Roman Gastesi Gastesi Date' 2023.09.11 10:56:45-04'00' Roman Gastesi, County Administrator Distribution: List VI Originator: DHR Review: 7/14/2026 2 2852 MCA Inst 4715.6 July 14,2023 Enclosure(1) County of Monroe ' The Florida Keys MONROE COUNTY VOLUNTEER APPLICATION FORM Name: Date: Add ress/city/state/zip: Home phone: Cell phone: Email: SSN: Your social security number is requested for the purpose of payroll eligibility verification,processing employment benefits, applicant and employee background checks,and income reporting and will be used solely for those purposes. Volunteer position: County Department: Location: Days/Hours Available: Are any accommodations needed in arranging your assignment? If so, state what accommodations are requested: Have you volunteered with Monroe County before? If so, in which department, dates? VOLUNTEERS MAY BE SUBJECT TO BACKGROUND CHECKS. MONROE COUNTY IS A DRUG-FREE WORKPLACE AND VOLUNTEERS ARE SUBJECT TO THE MONROE COUNTY DRUG-FREE WORKPLACE POLICY AND RULES OF WORK. BY SIGNING BELOW,THE APPLICANT CERTIFIES THAT THE APPLICANT HAS RECEIVED A COPY OF THE DRUG-FREE WORKPLACE POLICY AND WILL ABIDE BY THE POLICY. Signature Date Do you have transportation? ❑ Yes ❑ No Will you be driving as part of your volunteer assignment? ❑Yes ❑ No Driver License#: Expiration: Insurance Company: Policy#: 3 2853 INSURANCE AGREEMENT I, , understand that if I use my personal auto in my volunteer service, I will arrange to keep in effect automobile insurance equal to the minimum limits required by the State of Florida. I also understand that any accident medical coverage supplied to me will be in excess of any available Medicare or group health insurance program in force. Signature Date EMERGENCY CONTACT Name: Relationship to volunteer: Add ress/city/state/zi p: Home phone: Cell phone: I designate as my beneficiary for any accidental death benefits available to me. Relationship to beneficiary: Add ress/city/state/zi p: Home phone: Cell phone: 1, , understand and acknowledge that I am giving my time, skills, and services as a volunteer and I am not an employee, official, or representative of the Monroe County Board of County Commissioners. I further acknowledge that I may not be entitled to any stipend, compensation, benefits, or other rights applicable to Monroe County employees. I understand that the County can terminate my status as a volunteer at any time for any reason. Acting as a volunteer does not create an expectation of future employment. Signature Witness Date Date 4 2854 DEPARTMENT HEADS SHALL NOTIFY HUMAN RESOURCES TO CONDUCT A SEARCH OF REGISTRATION INFORMATION THROUGH THE DRU SJODIN NATIONAL SEXUAL OFFENDER PUBLIC WEBSITE MAINTAINED BY THE UNITED STATES DEPARTMENT OF JUSTICE BEFORE PLACING THE INDIVIDUAL IN A POSITION TO VOLUNTEER AT A PARK, PLAYGROUND, DAY CARE CENTER OR OTHER PLACE WHERE CHILDREN REGULARLY CONGREGATE TO COMPLY WITH FLORIDA STATUTE 943.04351. DEPARTMENT HEADS SHALL ALSO NOTIFY HUMAN RESOURCES IF ANY ADDITIONAL BACKGROUND CHECKS MAY BE NEEDED, E.G.,LEVEL II SCREENING FOR VOLUNTEERS IN AHCA-REGULATED FACILITIES, F.S.408.809(4). 5 2855 MCA Inst 4715.6 July 14,2023 Enclosure(2) y" BOARD OF COUNTY COMMISSIONERS County of Monroe ��� Mayor Craig Cates,District 1 The Florida Keys Mayor Pro Tem Holly Merrill Raschein,District 5 Michelle Lincoln,District 2 James K.Scholl,District 3 David Rice,District 4 FLORIDA RETIREMENT SYSTEM VOLUNTEER SERVICES Effective July 1, 2023 Subsection (15) is added to section 121.091, Florida Statutes, to read: VOLUNTEER SERVICES. —Employers may establish post-employment volunteer programs to allow retirees to provide civic, charitable, and humanitarian services during the first 12 calendar months following retirement without causing the retiree to violate the requirement concerning termination of employment as defined in 26 C.F.R. s. 1.409A-1(h)(1)(ii), provided that the program meets all of the following criteria: (a) Before the date of retirement, there was no agreement or understanding between the employer and the retiree that the retiree would provide any service for the employer. (b) The employer or a third party may not provide any form of compensation, including any cash equivalents, to a volunteer for his or her volunteer service. (c) Except as otherwise provided in law, a volunteer may not be provided any employee benefits, including health or life insurance benefits. However, a volunteer may be provided certain perquisites necessary for, and for the limited purpose of, completing tasks associated with the volunteer program, such as an assigned uniform or the provision of equipment. (d) The number of volunteer hours per week, including training hours, that the volunteer may provide is no more than 20 percent of the number of hours that the volunteer was expected to work per week before his or her date of retirement. (e)There is a clear distinction between the duties of a volunteer and the duties of an employee. (f) The schedule of a volunteer, including the number of hours volunteered and the number and type of assignments for which he or she agrees to volunteer, is controlled by the volunteer. (g) The employer and the retiree are both required to maintain adequate records to document adherence to the criteria listed in this subsection. The records must be made available to the department or state board upon request. 2856 RESOLUTIONNO. -2024 A RESOLUTION OF THE BOARD OF COUNTY COMMISSIONERS OF MONROE COUNTY, FLORIDA, APPROVING AND RATIFYING MONROE COUNTY ADMINISTRATIVE INSTRUCTION 4715.6, SETTING POLICY REGARDING THE MONROE COUNTY POSTEMPLOYMENT VOLUNTEER PROGRAM, IN ORDER TO COMPLY WITH SECTION 121.091(15), FLORIDA STATUTES. WHEREAS, in 2023, the Florida legislature enacted Chapter 2023-316, Laws of Florida, which amended F.S. 121.021 in order to provide that a person who has retired from FRS may provide volunteer services to an FRS employer within the first twelve (12) months following retirement without violating Florida statutes and an IRS regulation requiring termination from employment; and WHEREAS, Ch. 2023-316, L.O.F., also provides that FRS employers may establish post-employment volunteer programs to allow retirees to provide civic, charitable and humanitarian services during the first 12 months following retirement without causing the retiree to violate the "full termination" requirements in F.S. 121.021 and 26 C.F.R. § 1.409A-1(h)(1)(ii); and WHEREAS, Monroe County Administrative Instruction 4715.6 (Attachment 1) sets forth procedures for utilizing services from persons who wish to contribute their time and energies as volunteers for Monroe County; and WHEREAS, Administrative Instruction 4715.6 states that any Florida Retirement System (FRS) retirees who wish to volunteer with Monroe County must adhere to the guidelines established by Section 121.091(15), Florida Statutes, laid out in Enclosure 2 to the Administrative Instruction; and WHEREAS, in order to comply with F.S. 121.091(15), which requires the FRS employer to establish the post-employment volunteer program, staff requests approval and ratification of Administrative Instruction 4715.6 by the Board of County Commissioners. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF MONROE COUNTY, THAT: 1. Administrative Instruction 4715.6, as it may be amended from time to time, is hereby approved and ratified by the Board of County Commissioners. The provisions of the Administrative Instruction that apply to FRS retirees, including the requirements set forth 1 2857 in Enclosure (2)to the administrative Instructions, are hereby established as the post- employment volunteer program for Monroe County. 2. The Monroe County Employee Services Department is hereby directed to generate the appropriate forms and procedure in order to comply with F.S. 121.091(15)(g) as applied to Monroe County, which states that the FRS employer is required to maintain adequate records to document adherence to the criteria listed in F.S. 121.091(15)(a)-(f), and to make the records available upon request to the State Department of Management Services and the State Board of Administration. PASSED AND ADOPTED by the Board of County Commissioners of Monroe County, Florida, at a regular meeting held on the 21st of February 2024. Mayor Holly Merrill Raschein Mayor Pro Tem James K. Scholl Commissioner Michelle Lincoln Commissioner Craig Cates Commissioner David Rice BOARD OF COUNTY COMMISSIONERS OF MONROE COUNTY, FLORIDA (SEAL) BY: MAYOR CRAIG CATES ATTEST: KEVIN MADOK, CLERK Approved as to form and legal sufficiency: Monroe County Attorney's Office: 4. wog 2-5-2024 AS DEPUTY CLERK 2 2858 Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... ' Niue �� a Jd>�'in Select Year: 2023 Go The 2023 Florida Statutes (including Special Session Q Title X Chapter 121 View Entire PUBLIC OFFICERS, EMPLOYEES, AND FLORIDA RETIREMENT Chapter RECORDS SYSTEM 121.091 Benefits payable under the system.—Benefits may not be paid under this section unless the member has terminated employment as provided in s. 121.021(39)(a) or begun participation in the Deferred Retirement Option Program as provided in subsection (13), and a proper application has been filed in the manner prescribed by the department. The department may cancel an application for retirement benefits when the member or beneficiary fails to timely provide the information and documents required by this chapter and the department's rules. The department shall adopt rules establishing procedures for application for retirement benefits and for the cancellation of such application when the required information or documents are not received. (1) NORMAL RETIREMENT BENEFIT.—Upon attaining his or her normal retirement date, the member, upon application to the administrator, shall receive a monthly benefit which shall begin to accrue on the first day of the month of retirement and be payable on the last day of that month and each month thereafter during his or her lifetime. The normal retirement benefit, including any past or additional retirement credit, may not exceed 100 percent of the average final compensation. The amount of monthly benefit shall be calculated as the product of A and B, subject to the adjustment of C, if applicable, as set forth below: (a)1. For creditable years of Regular Class service, A is 1.60 percent of the member's average final compensation, up to the member's normal retirement date. Upon completion of the first year after the normal retirement date, A is 1.63 percent of the member's average final compensation. Following the second year after the normal retirement date, A is 1.65 percent of the member's average final compensation. Following the third year after the normal retirement date, and for subsequent years, A is 1.68 percent of the member's average final compensation. 2. For creditable years of special risk service, A is: a. Two percent of the member's average final compensation for all creditable years prior to October 1, 1974; b. Three percent of the member's average final compensation for all creditable years after September 30, 1974, and before October 1, 1978; c. Two percent of the member's average final compensation for all creditable years after September 30, 1978, and before January 1, 1989; d. Two and two-tenths percent of the member's final monthly compensation for all creditable years after December 31, 1988, and before January 1, 1990; e. Two and four-tenths percent of the member's average final compensation for all creditable years after December 31, 1989, and before January 1, 1991; f. Two and six-tenths percent of the member's average final compensation for all creditable years after December 31, 1990, and before January 1, 1992; g. Two and eight-tenths percent of the member's average final compensation for all creditable years after December 31, 1991, and before January 1, 1993; h. Three percent of the member's average final compensation for all creditable years after December 31, 2859 1 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... 1992; and i. Three percent of the member's average final compensation for all creditable years of service after September 30, 1978, and before January 1, 1993, for any special risk member who retires after July 1, 2000, or any member of the Special Risk Administrative Support Class entitled to retain the special risk normal retirement date who was a member of the Special Risk Class during the time period and who retires after July 1, 2000. 3. For creditable years of Senior Management Service Class service after January 31, 1987, A is 2 percent; 4. For creditable years of Elected Officers' Class service as a Supreme Court Justice, district court of appeal judge, circuit judge, or county court judge, A is 31/3 percent of the member's average final compensation, and for all other creditable service in such class, A is 3 percent of average final compensation; (b) B is the number of the member's years and any fractional part of a year of creditable service earned subsequent to November 30, 1970; and (c) C is the normal retirement benefit credit brought forward as of November 30, 1970, by a former member of an existing system. Such normal retirement benefit credit shall be determined as the product of X and Y when X is the percentage of average final compensation which the member would have been eligible to receive if the member had attained his or her normal retirement date as of November 30, 1970, all in accordance with the existing system under which the member is covered on November 30, 1970, and Y is average final compensation as defined in s. 121.021(24). However, any member of an existing retirement system who is eligible to retire and who does retire, become disabled, or die prior to April 15, 1971, may have his or her retirement benefits calculated on the basis of the best 5 of the last 10 years of service. (d) A member's average final compensation shall be determined by formula to obtain the coverage for the 5 highest fiscal years' salaries, calculated as provided by rule. (2) BENEFITS PAYABLE FOR DUAL NORMAL RETIREMENT AGES.—If a member accumulates retirement benefits to commence at different normal retirement ages by virtue of having performed duties for an employer which would entitle him or her to benefits as both a member of the Special Risk Class and a member of either the Regular Class, Senior Management Service Class, or Elected Officers' Class, the amount of benefits payable shall be computed separately with respect to each such age and the sum of such computed amounts shall be paid as provided in this section. (3) EARLY RETIREMENT BENEFIT.—Upon retirement on his or her early retirement date, the member shall receive an immediate monthly benefit that shall begin to accrue on the first day of the month of the retirement date and be payable on the last day of that month and each month thereafter during his or her lifetime. Such benefit shall be calculated as follows: (a) For a member initially enrolled: 1. Before July 1, 2011, the amount of each monthly payment shall be computed in the same manner as for a normal retirement benefit, in accordance with subsection (1), but shall be based on the member's average monthly compensation and creditable service as of the member's early retirement date. The benefit so computed shall be reduced by five-twelfths of 1 percent for each complete month by which the early retirement date precedes the normal retirement date of age 62 for a member of the Regular Class, Senior Management Service Class, or the Elected Officers' Class, and age 55 for a member of the Special Risk Class, or age 52 if a special risk member has completed 25 years of creditable service in accordance with s. 121.021(29) (b)3. 2. On or after July 1, 2011, the amount of each monthly payment shall be computed in the same manner as for a normal retirement benefit, in accordance with subsection (1), but shall be based on the member's average monthly compensation and creditable service as of the member's early retirement date. The benefit so computed shall be reduced by five-twelfths of 1 percent for each complete month by which the early retirement date precedes the normal retirement date of age 65 for a member of the Regular Class, Senior Management Service Class, or the Elected Officers' Class, and age 55 for a member of the Special Risk Class, or age 52 if a special risk member has completed 25 years of creditable service in accordance with is. 121.091(29) 2860 2 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... (b)3. (b) If the employment of a member is terminated by reason of death within 10 years before normal retirement as described in s. 121.021(29)(a)l.b. or s. 121.021(29)(a)2.b., the monthly benefit payable to the member's beneficiary shall be calculated in accordance with subsection (1), but must be based on average monthly compensation and creditable service as of the date of death. The benefit so computed shall be reduced by five-twelfths of 1 percent for each complete month by which death precedes the normal retirement date specified above or the date on which the member would have attained the normal retirement date had he or she survived and continued his or her employment, whichever provides a higher benefit. (4) DISABILITY RETIREMENT BENEFIT.— (a) Disability retirement; entitlement and effective date.— 1.a. A member who becomes totally and permanently disabled, as defined in paragraph (b), after completing 5 years of creditable service, or a member who becomes totally and permanently disabled in the line of duty regardless of service, is entitled to a monthly disability benefit; except that any member with less than 5 years of creditable service on July 1, 1980, or any person who becomes a member of the Florida Retirement System on or after such date must have completed 10 years of creditable service before becoming totally and permanently disabled in order to receive disability retirement benefits for any disability which occurs other than in the line of duty. However, if a member employed on July 1, 1980, who has less than 5 years of creditable service as of that date becomes totally and permanently disabled after completing 5 years of creditable service and is found not to have attained fully insured status for benefits under the federal Social Security Act, such member is entitled to a monthly disability benefit. b. Effective July 1, 2001, a member of the pension plan who becomes totally and permanently disabled, as defined in paragraph (b), after completing 8 years of creditable service, or a member who becomes totally and permanently disabled in the line of duty regardless of service, is entitled to a monthly disability benefit. 2. If the division has received from the employer the required documentation of the member's termination of employment, the effective retirement date for a member who applies and is approved for disability retirement shall be established by rule of the division. 3. For a member who is receiving Workers' Compensation payments, the effective disability retirement date may not precede the date the member reaches Maximum Medical Improvement (MMI), unless the member terminates employment before reaching MMI. (b) Total and permanent disability.—A member shall be considered totally and permanently disabled if, in the opinion of the administrator, he or she is prevented, by reason of a medically determinable physical or mental impairment, from rendering useful and efficient service as an officer or employee. (c) Proof of disability.—The administrator, before approving payment of any disability retirement benefit, shall require proof that the member is totally and permanently disabled as provided herein: 1. Such proof shall include the certification of the member's total and permanent disability by two licensed physicians of the state and such other evidence of disability as the administrator may require, including reports from vocational rehabilitation, evaluation, or testing specialists who have evaluated the applicant for employment. A member whose position with an employer requires that the member work full time outside this state in the United States may include certification by two licensed physicians of the state where the member works. A member who is receiving care at a federal Veterans Health Administration facility may include certification by two licensed physicians working at the facility. 2. It must be documented that: a. The member's medical condition occurred or became symptomatic during the time the member was employed in an employee/employer relationship with his or her employer; b. The member was totally and permanently disabled at the time he or she terminated covered employment; and c. The member has not been employed with any other employer after such termination. 3. If the application is for in-line-of-duty disability, in addition to the requirements of subparagraph 2., it 2861 3 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... must be documented by competent medical evidence that the disability was caused by a job-related illness or accident which occurred while the member was in an employee/employer relationship with his or her employer. 4. The unavailability of an employment position that the member is physically and mentally capable of performing will not be considered as proof of total and permanent disability. (d) Election on appeal.—A member whose application for regular disability retirement has been denied and who has filed an appeal to the State Retirement Commission may, if eligible, elect to receive normal or early service retirement benefits while he or she is awaiting the decision on the appeal. However: 1. If the member elects to receive service retirement benefits and disability benefits are later approved as a result of the appeal, the payment option chosen by the member may not be changed. 2. If the member elects to receive early service retirement and the appeal is later denied, the member may not change his or her election of early retirement. Before such regular or early retirement benefits may be paid by the division, the member must provide to the division a written statement indicating that the member understands that such changes are not permitted after he or she begins receiving the benefits. (e) Disability retirement benefit.—Upon the retirement of a member on his or her disability retirement date, the member shall receive a monthly benefit that shall begin to accrue on the first day of the month of disability retirement and shall be payable on the last day of that month and each month thereafter during his or her lifetime and continued disability. (f) Computation of disability retirement benefit.—The amount of each monthly payment shall be computed in the same manner as for a normal retirement benefit, in accordance with subsection (1), but shall be based on disability option actuarial equivalency tables and the average monthly compensation and creditable service of the member as of the disability retirement date, subject to the following conditions: 1. If the member's disability occurred in the line of duty, the monthly Option 1 benefit shall not be less than: a. Forty-two percent of average monthly compensation as of the disability retirement date; or b. Sixty-five percent of the average monthly compensation as of the disability retirement date for a member of the special risk class who retires on or after July 1, 2000; or 2. If the member's disability occurred other than in the line of duty, the monthly Option 1 benefit shall not be less than 25 percent of average monthly compensation as of the disability retirement date. (g) Reapplication.—A member, whose initial application for disability retirement has been denied, may reapply for disability benefits. However, such member's reapplication will be considered only if the member presents new medical evidence of a medical condition that existed prior to the member's termination of employment. The division may prescribe by rule procedures for reapplication and for review and approval or disapproval of reapplication. (h) Recovery from disability.—The administrator may require periodic reexaminations at the expense of the retirement fund. The division may adopt rules establishing procedures for conducting and review of such reexaminations. 1. If the administrator finds that a member who is receiving disability benefits is, at any time prior to his or her normal retirement date, no longer disabled, the administrator shall direct that the benefits be discontinued. The decision of the administrator on this question shall be final and binding. If such member: a. Does not reenter the employ of an employer and was not vested as of the disability retirement date, he or she shall be entitled to the excess, if any, of his or her accumulated contributions over the total disability benefits received up to the date of recovery. b. Does not reenter the employ of an employer, but was vested as of the disability retirement date, he or she may elect to receive: (I) The excess, if any, of his or her accumulated contributions over the total disability benefits received up to the date of recovery; or 2862 4 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... (II) A deferred benefit commencing on the last day of the month of the normal retirement date which shall be payable on the last day of the month thereafter during his or her lifetime. The amount of such monthly benefit shall be computed in the same manner as for a normal retirement benefit, in accordance with subsection (1), but shall be based on average monthly compensation and creditable service as of the member's disability retirement date. c. Reenters employment of an employer within 6 months after recovery, the member's service will be deemed to have been continuous, but the period beginning with the first month for which he or she received a disability benefit payment and ending with the date he or she reentered employment will not be considered as creditable service for the purpose of computing benefits except as provided in sub-subparagraph d. As used in this section, the term "accumulated contributions" for such member means the excess of the member's accumulated contributions as of the disability retirement date over the total disability benefits received under paragraph (e). d. Terminates his or her disability benefit, reenters covered employment, and is continuously employed for a minimum of 1 year of creditable service, he or she may claim as creditable service the months during which he or she was receiving a disability benefit, upon payment of the required contributions. Contributions shall equal the total required employee and employer contribution rate applicable during the period the retiree received retirement benefits, multiplied times his or her rate of monthly compensation prior to the commencement of disability retirement for each month of the period claimed, plus 4 percent interest until July 1, 1975, and 6.5 percent interest thereafter, compounded annually each June 30 to the date of payment. If the member does not claim credit for all of the months he or she received disability benefits, the months claimed must be the most recent months of retirement. Such credit for periods of disability, when purchased under the Florida Retirement System, shall apply toward vesting requirements for eligibility to purchase additional credit for other service. 2. Both the member receiving disability benefits who reenters employment and the employer employing such disability retiree shall notify the division immediately upon reemployment, and the division shall terminate such member's disability benefits, effective the first day of the month following the month in which notification of recovery is received. If the member is reemployed with a Florida Retirement System employer at the time of benefit termination, and he or she has received disability retirement benefit and salary payments concurrently prior to notifying the division, he or she may elect within 30 days to: a. Retain the retirement benefits received prior to termination of disability benefits and begin receiving retirement service credit effective upon the date of termination of benefits; or b. Repay, within 12 months after his or her decision to receive service credit, the retirement benefits received for each month of reemployment prior to termination of disability benefits and begin receiving retirement service credit effective upon the date of reemployment. Any such unpaid benefits shall have compound interest of 6.5 percent added June 30. A member may not receive both retirement service credit for employment and retirement benefits for the same month. 3. If, after recovery of disability and reentry into covered employment, the member again becomes disabled and is again approved for disability retirement, the Option 1 monthly retirement benefit shall not be less than the Option 1 monthly benefit calculated at the time of the previous disability, plus any cost of living increases up to the time the disability benefit was terminated upon his or her reentry into covered employment. (i) Nonadmissible causes of disability.—A member shall not be entitled to receive any disability retirement benefit if the disability is a result of any of the following: 1. Injury or disease sustained by the member while willfully participating in a riot, civil insurrection, or other act of violence or while committing a felony; 2. Injury or disease sustained by the member after his or her employment has terminated; or 2863 5 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... 3. Intentional, self-inflicted injury. (j) Disability retirement of justice or judge by order of Supreme Court.- 1. If a member is a justice of the Supreme Court, judge of a district court of appeal, circuit judge, or judge of a county court who has served for the number of years equal to, or greater than, the vesting requirement in s. 121.021(45) as an elected constitutional judicial officer, including service as a judicial officer, in any court abolished pursuant to Art. V of the State Constitution, and who is retired for disability by order of the Supreme Court upon recommendation of the Judicial Qualifications Commission pursuant to Art. V of the State Constitution, the member's Option 1 monthly benefit as provided in subparagraph (6)(a)1. may not be less than two-thirds of his or her monthly compensation as of the member's disability retirement date. Such member may alternatively elect to receive a disability retirement benefit under any other option as provided in paragraph (6) (a). 2. Should any justice or judge who is a member of the Florida Retirement System be retired for disability by order of the Supreme Court upon recommendation of the Judicial Qualifications Commission pursuant to Art. V of the State Constitution, then all contributions to his or her account and all contributions made on his or her behalf by the employer shall be transferred to and deposited in the General Revenue Fund of the state, and there is hereby appropriated annually out of the General Revenue Fund, to be paid into the Florida Retirement System Fund, an amount necessary to pay the benefits of all justices and judges retired from the Florida Retirement System pursuant to Art. V of the State Constitution. (5) TERMINATION BENEFITS.—A member whose employment is terminated prior to retirement retains membership rights to previously earned member-noncontributory service credit, and to member-contributory service credit, if the member leaves the member contributions on deposit in his or her retirement account. If a terminated member receives a refund of member contributions, such member may reinstate membership rights to the previously earned service credit represented by the refund by completing 1 year of creditable service and repaying the refunded member contributions, plus interest. (a) A member whose employment is terminated for any reason other than death or retirement before becoming vested is entitled to the return of his or her accumulated contributions as of the date of termination. Effective July 1, 2011, upon termination of employment from all participating employers for 3 calendar months as defined in s. 121.021(39)(c) for any reason other than retirement, a member may receive a refund of all contributions he or she has made to the pension plan, subject to the restrictions otherwise provided in this chapter. The refund may be received as a lump-sum payment, a rollover to a qualified plan, or a combination of these methods. Partial refunds are not permitted. The refund may not include any interest earnings on the contributions for a member of the pension plan. Employer contributions made on behalf of the member are not refundable. A member may not receive a refund of employee contributions if a pending or an approved qualified domestic relations order is filed against his or her retirement account. By obtaining a refund of contributions, a member waives all rights under the Florida Retirement System and the health insurance subsidy to the service credit represented by the refunded contributions, except the right to purchase his or her prior service credit in accordance with s. 121.081(2). (b) A member whose employment is terminated for any reason other than death or retirement after becoming vested may elect to receive a deferred monthly benefit which shall begin to accrue on the first day of the month of normal or early retirement and shall be payable on the last day of that month and each month thereafter during his or her lifetime. The amount of monthly benefit shall be computed in the same manner as for a normal retirement benefit in accordance with subsection (1) or early retirement benefit in accordance with s. 121.021(30), but based on average monthly compensation and creditable service as of the date of termination. (c) In lieu of the deferred monthly benefit provided in paragraph (b), the terminated member may elect to receive a lump-sum amount equal to his or her accumulated contributions as of the date of termination. Effective July 1, 2011, upon termination of employment from all participating employers for 3 calendar months as defined in s. 121.021(39)(c) for any reason other than retirement, a member may receive a refund of all 2864 6 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... contributions he or she has made to the pension plan, subject to the restrictions otherwise provided in this chapter. Partial refunds are not permitted. The refund may not include any interest earnings on the contributions for a member of the pension plan. Employer contributions made on behalf of the member are not refundable. A member may not receive a refund of employee contributions if a pending or an approved qualified domestic relations order is filed against his or her retirement account. By obtaining a refund of contributions, a member waives all rights under the Florida Retirement System and the health insurance subsidy to the service credit represented by the refunded contributions, except the right to purchase his or her prior service credit in accordance with s. 121.081(2). (d) If any retired member dies without having received in benefit payments an amount equal to his or her accumulated contributions, there shall be payable to his or her designated beneficiary an amount equal to the excess, if any, of the member's accumulated contributions over the total monthly payments made to the member prior to the date of death. (e) A member shall be deemed a terminated member when termination of employment has occurred as provided in s. 121.021(39). (f) Any member who has been found guilty by a verdict of a jury, or by the court trying the case without a jury, of committing, aiding, or abetting any embezzlement or theft from his or her employer, bribery in connection with the employment, or other felony specified in chapter 838, except ss. 838.15 and 838.16, committed prior to retirement, or who has entered a plea of guilty or of nolo contendere to such crime, or any member whose employment is terminated by reason of the member's admitted commitment, aiding, or abetting of an embezzlement or theft from his or her employer, bribery, or other felony specified in chapter 838, except ss. 838.15 and 838.16, shall forfeit all rights and benefits under this chapter, except the return of his or her accumulated contributions as of the date of termination. (g) Any elected official who is convicted by the Senate of an impeachable offense shall forfeit all rights and benefits under this chapter, except the return of his or her accumulated contributions as of the date of the conviction. (h) Any member who, prior to retirement, is adjudged by a court of competent jurisdiction to have violated any state law against strikes by public employees, or who has been found guilty by such court of violating any state law prohibiting strikes by public employees, shall forfeit all rights and benefits under this chapter, except the return of his or her accumulated contributions as of the date of the conviction. (i) The division or the state board may not pay benefits to any member convicted of a felony committed on or after October 1, 2008, defined in s. 800.04 against a victim younger than 16 years of age, or defined in chapter 794 against a victim younger than 18 years of age, through the use or attempted use of power, rights, privileges, duties, or position of the member's public office or employment position. However, the division or the state board shall return the member's accumulated contributions, if any, that the member accumulated as of the date of conviction. (j) Any beneficiary who by a verdict of a jury or by the court trying the case without a jury is found guilty, or who has entered a plea of guilty or nolo contendere, of unlawfully and intentionally killing or procuring the death of the member forfeits all rights to the deceased member's benefits under this chapter, and the benefits will be paid as if such beneficiary had predeceased the decedent. (k) Benefits may not be paid by the division or the state board pending final resolution of such charges against a member or beneficiary if the resolution of such charges could require the forfeiture of benefits as provided in paragraph (f), paragraph (g), paragraph (h), paragraph (i), paragraph (j), or chapter 112. (6) OPTIONAL FORMS OF RETIREMENT BENEFITS AND DISABILITY RETIREMENT BENEFITS.— (a) Prior to the receipt of the first monthly retirement payment, a member shall elect to receive the retirement benefits to which he or she is entitled under subsection (1), subsection (2), subsection (3), or subsection (4) in accordance with one of the following options: 1. The maximum retirement benefit payable to the member during his or her lifetime. 2. A decreased retirement benefit payable to the member during his or her lifetime and, in the event of his 2865 7 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... or her death within a period of 10 years after retirement, the same monthly amount payable for the balance of such 10-year period to his or her beneficiary or, in case the beneficiary is deceased, in accordance with subsection (8) as though no beneficiary had been named. 3. A decreased retirement benefit payable during the joint lifetime of both the member and his or her joint annuitant and which, after the death of either, shall continue during the lifetime of the survivor in the same amount, subject to the provisions of subsection (12). 4. A decreased retirement benefit payable during the joint lifetime of the member and his or her joint annuitant and which, after the death of either, shall continue during the lifetime of the survivor in an amount equal to 662/3 percent of the amount that was payable during the joint lifetime of the member and his or her joint annuitant, subject to the provisions of subsection (12). The spouse of any member who elects to receive the benefit provided under subparagraph 1. or subparagraph 2. shall be notified of and shall acknowledge any such election. The division shall establish by rule a method for selecting the appropriate actuarial factor for optional forms of benefits selected under subparagraphs 3. and 4., based on the age of the member and the joint annuitant. (b) The benefit payable under any option stated above shall be the actuarial equivalent, based on tables adopted by the administrator for this purpose, of the amount to which the member was otherwise entitled. (c) A member who elects the option in subparagraph (a)2. shall, in accordance with subsection (8), designate one or more persons to receive the benefits payable in the event of his or her death. Such persons shall be the beneficiaries of the member. The member may also designate one or more contingent beneficiaries to receive any benefits remaining upon the death of the primary beneficiary. (d) A member who elects the option in subparagraph (a)3. or subparagraph (a)4. shall, on a form provided for that purpose, designate a joint annuitant to receive the benefits which continue to be payable upon the death of the member. After benefits have commenced under the option in subparagraph (a)3. or subparagraph (a)4., the following shall apply: 1. A retired member may change his or her designation of a joint annuitant only twice. If such a retired member desires to change his or her designation of a joint annuitant, he or she shall file with the division a notarized "change of joint annuitant" form and shall notify the former joint annuitant in writing of such change. Effective the first day of the next month following receipt by the division of a completed change of joint annuitant form, the division shall adjust the member's monthly benefit by the application of actuarial tables and calculations developed to ensure that the benefit paid is the actuarial equivalent of the present value of the member's current benefit. The consent of a retired member's first designated joint annuitant to any such change shall not be required. However, if either the member or the joint annuitant dies before the effective date of the request for change of joint annuitant, the requested change shall be void, and survivor benefits, if any, shall be paid as if no request had been made. 2. In the event of the dissolution of marriage of a retired member and a joint annuitant, such member may make an election to nullify the joint annuitant designation of the former spouse, unless there is an existing qualified domestic relations order preventing such action. The member shall file with the division a written, notarized nullification which shall be effective on the first day of the next month following receipt by the division. Benefits shall be paid as if the former spouse predeceased the member. A member who makes such an election may not reverse the nullification but may designate a new joint annuitant in accordance with subparagraph 1. (e) The election of an option shall be null and void if the member dies before the effective date of retirement. (f) A member who elects to receive benefits under the option in subparagraph (a)3. may designate one or more qualified persons, either a spouse or other dependent, as his or her joint annuitant to receive the benefits after the member's death in whatever proportion he or she so assigns to each person named as joint annuitant. The division shall adopt appropriate actuarial tables and calculations necessary to ensure that the benefit paid 2866 8 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... is the actuarial equivalent of the benefit to which the member is otherwise entitled under the option in subparagraph (a)1. (g) Upon the death of a retired member or beneficiary receiving monthly benefits under this chapter, the monthly benefits shall be paid through the last day of the month of death and shall terminate, or be adjusted, if applicable, as of that date in accordance with the optional form of benefit selected at the time of retirement. (h) The option selected or determined for payment of benefits as provided in this section shall be final and irrevocable at the time a benefit payment is cashed or deposited or credited to the Deferred Retirement Option Program as provided in subsection (13). (7) DEATH BENEFITS.— (a) If the employment of a member is terminated by reason of his or her death prior to being vested, except as provided in paragraph (f), there shall be payable to his or her designated beneficiary the member's accumulated contributions. (b) If the employment of an active member who may or may not have applied for retirement is terminated by reason of his or her death subsequent to becoming vested and prior to his or her effective date of retirement, if established, it shall be assumed that the member retired as of the date of death in accordance with subsection (1) if eligible for normal retirement benefits, subsection (2) if eligible for benefits payable for dual normal retirement, or subsection (3) if eligible for early retirement benefits. Benefits payable to the designated beneficiary shall be as follows: 1. For a beneficiary who qualifies as a joint annuitant, the optional form of payment provided in accordance with subparagraph (6)(a)3. shall be paid for the joint annuitant's lifetime. 2. For a beneficiary who does not qualify as a joint annuitant, no continuing monthly benefit shall be paid and the beneficiary shall be entitled only to the return of the member's personal contributions. If there is no monetary interest in the member's retirement account for which such beneficiary is eligible, the beneficiary shall be the next named beneficiary or, if no other beneficiary is named, the beneficiary shall be the next eligible beneficiary according to subsection (8). (c) If a retiring member dies on or after the effective date of retirement, but prior to a benefit payment being cashed or deposited, or credited to the Deferred Retirement Option Program, benefits shall be paid as follows: 1. For a designated beneficiary who qualifies as a joint annuitant, benefits shall be paid in the optional form of payment provided in subparagraph (6)(a)3. for the joint annuitant's lifetime or, if the member chose the optional form of payment provided in subparagraph (6)(a)2., the joint annuitant may select the form provided in either subparagraph (6)(a)2. or subparagraph (6)(a)3. 2. For a designated beneficiary who does not qualify as a joint annuitant, any benefits payable shall be paid as provided in the option selected by the member; or if the member has not selected an option, benefits shall be paid in the optional form of payment provided in subparagraph (6)(a)1. (d) Notwithstanding any other provision in this chapter to the contrary, with the exception of the Deferred Retirement Option Program, as provided in subsection (13): 1. The surviving spouse of any member killed in the line of duty may receive a monthly pension equal to one-half of the monthly salary being received by the member at the time of death for the rest of the surviving spouse's lifetime or, if the member was vested, such surviving spouse may elect to receive a benefit as provided in paragraph (b). Benefits provided by this paragraph shall supersede any other distribution that may have been provided by the member's designation of beneficiary. 2. If the surviving spouse of a member killed in the line of duty dies, the monthly payments that would have been payable to such surviving spouse had such surviving spouse lived shall be paid for the use and benefit of such member's child or children under 18 years of age and unmarried until the 18th birthday of the member's youngest child. Beginning July 1, 2016, such payments may be extended, for the surviving child of a member in the Special Risk Class at the time he or she was killed in the line of duty on or after July 1, 2013, until the 25th 2867 9 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... birthday of any child of the member if the child is unmarried and enrolled as a full-time student. Beginning July 1, 2017, such payments may be extended, for the surviving child of a member in the Special Risk Class at the time he or she was killed in the line of duty on or after July 1, 2002, until the 25th birthday of any child of the member if the child is unmarried and enrolled as a full-time student. 3. If a member killed in the line of duty leaves no surviving spouse but is survived by a child or children under 18 years of age, the benefits provided by subparagraph 1., normally payable to a surviving spouse, shall be paid for the use and benefit of such member's child or children under 18 years of age and unmarried until the 18th birthday of the member's youngest child. Beginning July 1, 2016, such monthly payments may be extended, for the surviving child of a member in the Special Risk Class at the time he or she was killed in the line of duty on or after July 1, 2013, until the 25th birthday of any child of the member if the child is unmarried and enrolled as a full-time student. Beginning July 1, 2017, such monthly payments may be extended, for the surviving child of a member in the Special Risk Class at the time he or she was killed in the line of duty on or after July 1, 2002, until the 25th birthday of any child of the member if the child is unmarried and enrolled as a full-time student. 4. The surviving spouse of a member whose benefit terminated because of remarriage shall have the benefit reinstated beginning July 1, 1993, at an amount that would have been payable had the benefit not been terminated. (e) The surviving spouse or other dependent of any member, except a member who participated in the Deferred Retirement Option Program, whose employment is terminated by death shall, upon application to the administrator, be permitted to pay the required contributions for any service performed by the member which could have been claimed by the member at the time of his or her death. Such service shall be added to the creditable service of the member and shall be used in the calculation of any benefits which may be payable to the surviving spouse or other surviving dependent. (f) Notwithstanding any other provisions in this chapter to the contrary and upon application to the administrator, an eligible joint annuitant, of a member whose employment is terminated by death within 1 year of such member satisfying the service requirements for vesting and retirement eligibility, shall be permitted to purchase only the additional service credit necessary to vest and qualify for retirement benefits, not to exceed a total of 1 year of credit, by one or a combination of the following methods: 1. Such eligible joint annuitant may use the deceased member's accumulated hours of annual, sick, and compensatory leave to purchase additional creditable service, on an hour by hour basis, provided that such deceased member's accumulated leave is sufficient to cover the additional months required. For each month of service credit needed prior to the final month, credit for the total number of work hours in that month must be purchased, using an equal number of the deceased member's accumulated leave hours. Service credit required for the final month in which the deceased member would have become vested shall be awarded upon the purchase of 1 hour of credit. Such eligible joint annuitant shall pay the contribution rate in effect for the period of time being claimed for the deceased member's class of membership, multiplied by such member's monthly salary at the time of death, plus 6.5 percent interest compounded annually. The accumulated leave payment used in the average final compensation shall not include that portion of the payment that represents any leave hours used in the purchase of such creditable service. 2. Such eligible joint annuitant may purchase additional months of creditable service for any periods of out- of-state service as provided in s. 121.1115, and in-state service as provided in s. 121.1122, that the deceased member would have been eligible to purchase prior to his or her death. Service purchased under this paragraph shall be added to the creditable service of the member and used to vest for retirement eligibility, and shall be used in the calculation of any benefits which may be payable to the eligible joint annuitant. Any benefits paid in accordance with this paragraph shall only be made prospectively. (g) Notwithstanding any other provisions in this chapter to the contrary, if any member who is vested dies and the surviving spouse receives a refund of the accumulated contributions made to the retirement trust fund, 2868 10 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... such spouse may pay to the Division of Retirement an amount equal to the sum of the amount of the deceased member's accumulated contributions previously refunded plus interest at 4 percent compounded annually each June 30 from the date of refund until July 1, 1975, and 6.5 percent interest compounded annually thereafter, until full payment is made, and receive the monthly retirement benefit as provided in paragraph (b). (h) The designated beneficiary who is the surviving spouse or other dependent of a member whose employment is terminated by death subsequent to becoming vested, but prior to actual retirement, may elect to receive a deferred monthly benefit as if the member had lived and had elected a deferred monthly benefit, as provided in paragraph (5)(b), calculated on the basis of the average final compensation and creditable service of the member at his or her death and the age the member would have attained on the commencement date of the deferred benefit elected by the beneficiary, paid in accordance with option 3 of paragraph (6)(a). (i) Notwithstanding any provision in this chapter to the contrary, if a member in the Special Risk Class, other than a participant in the Deferred Retirement Option Program under subsection (13), is killed in the line of duty on or after July 1, 2002, the following benefits are payable in addition to the benefits provided in paragraph (d): 1. The surviving spouse may receive a monthly pension equal to one-half of the monthly salary being received by the member at the time of the member's death for the rest of the surviving spouse's lifetime or, if the member was vested, such surviving spouse may elect to receive a benefit as provided in paragraph (b). Benefits provided by this paragraph supersede any other distribution that may have been provided by the member's designation of beneficiary. 2. If the surviving spouse dies, the monthly payments that otherwise would have been payable to such surviving spouse shall be paid for the use and benefit of the member's child or children under 18 years of age and unmarried until the 18th birthday of the member's youngest child. Such monthly payments may be extended until the 25th birthday of the member's child if the child is unmarried and enrolled as a full-time student. 3. If the member leaves no surviving spouse but is survived by a child or children under 18 years of age, the benefits provided by subparagraph 1., normally payable to a surviving spouse, shall be paid for the use and benefit of such member's child or children under 18 years of age and unmarried until the 18th birthday of the member's youngest child. Such monthly payments may be extended until the 25th birthday of any of the member's children if the child is unmarried and enrolled as a full-time student. (8) DESIGNATION OF BENEFICIARIES.— (a) Each member may, on a form provided for that purpose, signed and filed with the division, designate a choice of one or more persons, named sequentially or jointly, as his or her beneficiary who shall receive the benefits, if any, which may be payable in the event of the member's death pursuant to the provisions of this chapter. If no beneficiary is named in the manner provided above, or if no beneficiary designated by the member survives the member, the beneficiary shall be the spouse of the deceased, if living. If the member's spouse is not alive at his or her death, the beneficiary shall be the living children of the member. If no children survive, the beneficiary shall be the member's father or mother, if living; otherwise, the beneficiary shall be the member's estate. The beneficiary most recently designated by a member on a form or letter filed with the division shall be the beneficiary entitled to any benefits payable at the time of the member's death, except that benefits shall be paid as provided in paragraph (7)(d) when death occurs in the line of duty. Notwithstanding any other provisions in this subsection to the contrary, for a member who dies prior to his or her effective date of retirement on or after January 1, 1999, the spouse at the time of death shall be the member's beneficiary unless such member designates a different beneficiary as provided herein subsequent to the member's most recent marriage. (b) A designated beneficiary of a retirement account for whom there is a monetary interest may disclaim his or her monetary interest as provided in chapter 739 and in accordance with division rules governing such disclaimers. Such disclaimer must be filed within 24 months after the event that created the interest, that is, the death of the member or annuitant. 2869 11 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... (c) Notwithstanding the member's designation of benefits to be paid through a trust to a beneficiary that is a natural person as provided in s. 121.021(46), and notwithstanding the provisions of the trust, benefits shall be paid directly to the beneficiary if the person is no longer a minor or an incapacitated person as defined in s. 744.102. 2(9) EMPLOYMENT AFTER RETIREMENT; LIMITATION.— (a) Any person who is retired under this chapter, except under the disability retirement provisions of subsection (4), may be employed by an employer that does not participate in a state-administered retirement system and receive compensation from that employment without limiting or restricting in any way the retirement benefits payable to that person. (b) Any person whose retirement is effective before July 1, 2010, or whose participation in the Deferred Retirement Option Program terminates before July 1, 2010, except under the disability retirement provisions of subsection (4) or as provided in s. 121.053, may be reemployed by an employer that participates in a state- administered retirement system and receive retirement benefits and compensation from that employer, except that the person may not be reemployed by an employer participating in the Florida Retirement System before meeting the definition of termination in s. 121.021 and may not receive both a salary from the employer and retirement benefits for 12 calendar months immediately subsequent to the date of retirement. However, a DROP participant shall continue employment and receive a salary during the period of participation in the Deferred Retirement Option Program, as provided in subsection (13). 1. A retiree who violates such reemployment limitation before completion of the 12-month limitation period must give timely notice of this fact in writing to the employer and to the Division of Retirement or the state board and shall have his or her retirement benefits suspended for the months employed or the balance of the 12-month limitation period as required in sub-subparagraphs b. and c. A retiree employed in violation of this paragraph and an employer who employs or appoints such person are jointly and severally liable for reimbursement to the retirement trust fund, including the Florida Retirement System Trust Fund and the Florida Retirement System Investment Plan Trust Fund, from which the benefits were paid. The employer must have a written statement from the retiree that he or she is not retired from a state-administered retirement system. Retirement benefits shall remain suspended until repayment has been made. Benefits suspended beyond the reemployment limitation shall apply toward repayment of benefits received in violation of the reemployment limitation. a. A district school board may reemploy a retiree as a substitute or hourly teacher, education paraprofessional, transportation assistant, bus driver, or food service worker on a noncontractual basis after he or she has been retired for 1 calendar month. A district school board may reemploy a retiree as instructional personnel, as defined in s. 1012.01(2)(a), on an annual contractual basis after he or she has been retired for 1 calendar month. Any member who is reemployed within 1 calendar month after retirement shall void his or her application for retirement benefits. District school boards reemploying such teachers, education paraprofessionals, transportation assistants, bus drivers, or food service workers are subject to the retirement contribution required by subparagraph 2. b. A Florida College System institution board of trustees may reemploy a retiree as an adjunct instructor or as a participant in a phased retirement program within the Florida College System, after he or she has been retired for 1 calendar month. A member who is reemployed within 1 calendar month after retirement shall void his or her application for retirement benefits. Boards of trustees reemploying such instructors are subject to the retirement contribution required in subparagraph 2. A retiree may be reemployed as an adjunct instructor for no more than 780 hours during the first 12 months of retirement. A retiree reemployed for more than 780 hours during the first 12 months of retirement must give timely notice in writing to the employer and to the Division of Retirement or the state board of the date he or she will exceed the limitation. The division shall suspend his or her retirement benefits for the remainder of the 12 months of retirement. Any retiree employed in violation of this sub-subparagraph and any employer who employs or appoints such person without notifying the division to suspend retirement benefits are jointly and severally liable for any benefits paid during the reemployment 2870 12 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... limitation period. The employer must have a written statement from the retiree that he or she is not retired from a state-administered retirement system. Any retirement benefits received by the retiree while reemployed in excess of 780 hours during the first 12 months of retirement must be repaid to the Florida Retirement System Trust Fund, and retirement benefits shall remain suspended until repayment is made. Benefits suspended beyond the end of the retiree's first 12 months of retirement shall apply toward repayment of benefits received in violation of the 780-hour reemployment limitation. c. The State University System may reemploy a retiree as an adjunct faculty member or as a participant in a phased retirement program within the State University System after the retiree has been retired for 1 calendar month. A member who is reemployed within 1 calendar month after retirement shall void his or her application for retirement benefits. The State University System is subject to the retired contribution required in subparagraph 2., as appropriate. A retiree may be reemployed as an adjunct faculty member or a participant in a phased retirement program for no more than 780 hours during the first 12 months of his or her retirement. A retiree reemployed for more than 780 hours during the first 12 months of retirement must give timely notice in writing to the employer and to the Division of Retirement or the state board of the date he or she will exceed the limitation. The division shall suspend his or her retirement benefits for the remainder of the 12 months. Any retiree employed in violation of this sub-subparagraph and any employer who employs or appoints such person without notifying the division to suspend retirement benefits are jointly and severally liable for any benefits paid during the reemployment limitation period. The employer must have a written statement from the retiree that he or she is not retired from a state-administered retirement system. Any retirement benefits received by the retiree while reemployed in excess of 780 hours during the first 12 months of retirement must be repaid to the Florida Retirement System Trust Fund, and retirement benefits shall remain suspended until repayment is made. Benefits suspended beyond the end of the retiree's first 12 months of retirement shall apply toward repayment of benefits received in violation of the 780-hour reemployment limitation. d. The Board of Trustees of the Florida School for the Deaf and the Blind may reemploy a retiree as a substitute teacher, substitute residential instructor, or substitute nurse on a noncontractual basis after he or she has been retired for 1 calendar month. Any member who is reemployed within 1 calendar month after retirement shall void his or her application for retirement benefits. The Board of Trustees of the Florida School for the Deaf and the Blind reemploying such teachers, residential instructors, or nurses is subject to the retirement contribution required by subparagraph 2. e. A developmental research school may reemploy a retiree as a substitute or hourly teacher or an education paraprofessional as defined in s. 1012.01(2) on a noncontractual basis after he or she has been retired for 1 calendar month. A developmental research school may reemploy a retiree as instructional personnel, as defined in s. 1012.01(2)(a), on an annual contractual basis after he or she has been retired for 1 calendar month after retirement. Any member who is reemployed within 1 calendar month voids his or her application for retirement benefits. A developmental research school that reemploys retired teachers and education paraprofessionals is subject to the retirement contribution required by subparagraph 2. f. A charter school may reemploy a retiree as a substitute or hourly teacher on a noncontractual basis after he or she has been retired for 1 calendar month. A charter school may reemploy a retired member as instructional personnel, as defined in s. 1012.01(2)(a), on an annual contractual basis after he or she has been retired for 1 calendar month after retirement. Any member who is reemployed within 1 calendar month voids his or her application for retirement benefits. A charter school that reemploys such teachers is subject to the retirement contribution required by subparagraph 2. 2. The employment of a retiree or DROP participant of a state-administered retirement system does not affect the average final compensation or years of creditable service of the retiree or DROP participant. Before July 1, 1991, upon employment of any person, other than an elected officer as provided in s. 121.053, who is retired under a state-administered retirement program, the employer shall pay retirement contributions in an amount equal to the unfunded actuarial liability portion of the employer contribution which would be required for regular members of the Florida Retirement System. Effective July 1, 1991, contributions shall be made as 2871 13 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... provided in s. 121.122 for retirees who have renewed membership or, as provided in subsection (13), for DROP participants. 3. Any person who is holding an elective public office which is covered by the Florida Retirement System and who is concurrently employed in nonelected covered employment may elect to retire while continuing employment in the elective public office if he or she terminates his or her nonelected covered employment. Such person shall receive his or her retirement benefits in addition to the compensation of the elective office without regard to the time limitations otherwise provided in this subsection. A person who seeks to exercise the provisions of this subparagraph as they existed before May 3, 1984, may not be deemed to be retired under those provisions, unless such person is eligible to retire under this subparagraph, as amended by chapter 84-11, Laws of Florida. (c) Any person whose retirement is effective on or after July 1, 2010, or whose participation in the Deferred Retirement Option Program terminates on or after July 1, 2010, who is retired under this chapter, except under the disability retirement provisions of subsection (4) or as provided in s. 121.053, may be reemployed by an employer that participates in a state-administered retirement system and receive retirement benefits and compensation from that employer. However, a person may not be reemployed by an employer participating in the Florida Retirement System before meeting the definition of termination in s. 121.021 and may not receive both a salary from the employer and retirement benefits for 6 calendar months after meeting the definition of termination, except as provided in paragraph (f). However, a DROP participant shall continue employment and receive a salary during the period of participation in the Deferred Retirement Option Program, as provided in subsection (13). 1. The reemployed retiree may not renew membership in the Florida Retirement System, except as provided in s. 121.122. 2. The employer shall pay retirement contributions in an amount equal to the unfunded actuarial liability portion of the employer contribution that would be required for active members of the Florida Retirement System in addition to the contributions required by s. 121.76. 3. A retiree initially reemployed in violation of this paragraph and an employer that employs or appoints such person are jointly and severally liable for reimbursement of any retirement benefits paid to the retirement trust fund from which the benefits were paid, including the Florida Retirement System Trust Fund and the Florida Retirement System Investment Plan Trust Fund, as appropriate. The employer must have a written statement from the employee that he or she is not retired from a state-administered retirement system. Retirement benefits shall remain suspended until repayment is made. Benefits suspended beyond the end of the retiree's 6-month reemployment limitation period shall apply toward the repayment of benefits received in violation of this paragraph. (d) This subsection applies to retirees, as defined in s. 121.4501(2), of the Florida Retirement System Investment Plan, subject to the following conditions: 1. A retiree may not be reemployed with an employer participating in the Florida Retirement System until such person has been retired for 6 calendar months. 2. A retiree employed in violation of this subsection and an employer that employs or appoints such person are jointly and severally liable for reimbursement of any benefits paid to the retirement trust fund from which the benefits were paid. The employer must have a written statement from the retiree that he or she is not retired from a state-administered retirement system. (e) The limitations of this subsection apply to reemployment in any capacity irrespective of the category of funds from which the person is compensated. (f) A retired law enforcement officer may be reemployed as a school resource officer by an employer that participates in the Florida Retirement System and receive compensation from that employer and retirement benefits after meeting the definition of termination in s. 121.021, but may not receive both a salary from the employer and retirement benefits for 6 calendar months immediately subsequent to the date of retirement. The reemployed retired law enforcement officer may not renew membership in the Florida Retirement System, 2872 14 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... except as provided in s. 121.122. (10) FUTURE BENEFITS BASED ON ACTUARIAL DATA.—It is the intent of the Legislature that future benefit increases enacted into law in this chapter shall be financed concurrently by increased contributions or other adequate funding, and such funding shall be based on sound actuarial data as developed by the actuary or state retirement actuary, as provided in ss. 121.021(6) and 121.192. (11) A member who becomes eligible to retire and has accumulated the maximum benefit of 100 percent of average final compensation may continue in active service, and, if upon the member's retirement the member elects to receive a retirement compensation pursuant to subsection (2), subsection (6), or subsection (7), the actuarial equivalent percentage factor applicable to the age of such member at the time the member reached the maximum benefit and to the age, at that time, of the member's spouse shall determine the amount of benefits to be paid. (12) SPECIAL PROVISIONS FOR PAYMENT OF CERTAIN SURVIVOR BENEFITS.—Notwithstanding any provision of this chapter to the contrary, for members with an effective date of retirement, or date of death if prior to retirement, on or after January 1, 1996, the named joint annuitant, as defined in s. 121.021(28)(b), who is eligible to receive benefits under subparagraph (6)(a)3. or subparagraph (6)(a)4., shall receive the maximum monthly retirement benefit that would have been payable to the member under subparagraph (6)(a)l.; however, payment of such benefit shall cease the month the joint annuitant attains age 25 unless such joint annuitant is disabled and incapable of self-support, in which case, benefits shall cease when the joint annuitant is no longer disabled. The administrator may require proof of disability or continued disability in the same manner as is provided for a member seeking or receiving a disability retirement benefit under subsection (4). 3(13) DEFERRED RETIREMENT OPTION PROGRAM.—In general, and subject to this section, the Deferred Retirement Option Program, hereinafter referred to as DROP, is a program under which an eligible member of the Florida Retirement System may elect to participate, deferring receipt of retirement benefits while continuing employment with his or her Florida Retirement System employer. The deferred monthly benefits shall accrue in the Florida Retirement System on behalf of the member, plus interest compounded monthly, for the specified period of the DROP participation, as provided in paragraph (c). Upon termination of employment, the member shall receive the total DROP benefits and begin to receive the previously determined normal retirement benefits. Participation in the DROP does not guarantee employment for the specified period of DROP. (a) Eligibility of member to participate in DROP.—All active Florida Retirement System members in a regularly established position, and all active members of the Teachers' Retirement System established in chapter 238 or the State and County Officers' and Employees' Retirement System established in chapter 122, which are consolidated within the Florida Retirement System under s. 121.011, are eligible to elect participation in DROP if: 1. The member is not a renewed member under s. 121.122 or a member of the State Community College System Optional Retirement Program under s. 121.051, the Senior Management Service Optional Annuity Program under s. 121.055, or the optional retirement program for the State University System under s. 121.35. 2. Election to participate in DROP may be made at any time following the date on which the member first reaches his or her normal retirement date. The member shall advise his or her employer and the division in writing of the date DROP begins. When establishing eligibility to participate in DROP, the member may elect to include or exclude any optional service credit purchased by the member from the total service used to establish the normal retirement date. A member who has dual normal retirement dates is eligible to elect to participate in DROP after attaining normal retirement date in either class. 3. The employer of a member electing to participate in DROP, or employers if dually employed, shall acknowledge in writing to the division the date the member's participation in DROP begins and the date the member's employment and DROP participation terminates. 4. Simultaneous employment of a member by additional Florida Retirement System employers subsequent to the commencement of a member's participation in DROP is permissible if such employers acknowledge in 2873 15 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... writing a DROP termination date no later than the member's existing termination date or the maximum participation period provided in paragraph (b). 5. A member may change employers while participating in DROP, subject to the following: a. A change of employment takes place without a break in service so that the member receives salary for each month of continuous DROP participation. If a member receives no salary during a month, DROP participation ceases unless the employer verifies a continuation of the employment relationship for such member pursuant to s. 121.021(39)(b). b. The member and new employer notify the division of the identity of the new employer on forms required by the division. c. The new employer acknowledges, in writing, the member's DROP termination date, which may be extended but not beyond the maximum participation period provided in paragraph (b), acknowledges liability for any additional retirement contributions and interest required if the member fails to timely terminate employment, and is subject to the adjustment required in sub-subparagraph (c)5.d. (b) Participation in DROP.—Except as provided in this paragraph, an eligible member may elect to participate in DROP for a period not to exceed a maximum of 96 calendar months. 1.a. Members who are instructional personnel employed by the Florida School for the Deaf and the Blind and authorized by the Board of Trustees of the Florida School for the Deaf and the Blind, who are instructional personnel as defined in s. 1012.01(2)(a)-(d) in grades K-12 and authorized by the district school superintendent, or who are instructional personnel as defined in s. 1012.01(2)(a) employed by a developmental research school and authorized by the school's director, or if the school has no director, by the school's principal, may: (I) Extend DROP participation beyond the initial 96-calendar-month period if the instructional personnel's termination date is before the end of the school year. Such instructional personnel may have DROP participation extended until the last day of the last calendar month of the school year in which their original DROP termination date occurred if a date other than the last day of the last calendar month of the school year is designated. (II) Participate in DROP for up to 24 calendar months beyond the 96-month period. Instructional personnel who are authorized to extend DROP participation beyond the 96-month period must have a termination date that is the last day of the last calendar month of the school year within the DROP extension granted by the employer. If the member's DROP participation has already been extended for the maximum 24 calendar months and the extension period concludes before the end of the school year, the member's DROP participation may be extended through the last day of the last calendar month of that school year. This sub-sub-subparagraph expires June 30, 2029. The employer shall notify the division of the change in termination date and the additional period of DROP participation for the affected instructional personnel. b. Administrative personnel in grades K-12, as defined in s. 1012.01(3), may be authorized to extend DROP participation beyond the initial 96 calendar month period if the administrative personnel's termination date is before the end of the school year. Such administrative personnel may have DROP participation extended until the last day of the last calendar month of the school year in which their original DROP termination date occurred if a date other than the last day of the last calendar month of the school year is designated. The employer shall notify the division of the change in termination date and the additional period of DROP participation for the affected administrative personnel. 2. Upon deciding to participate in DROP, the member shall submit, on forms required by the division: a. A written election to participate in DROP; b. Selection of DROP participation and termination dates that satisfy the limitations stated in paragraph (a) and this paragraph. The termination date must be in a binding letter of resignation to the employer establishing a deferred termination date. The member may change the termination date within the limitations of this paragraph, but only with the written approval of the employer; 2874 16 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... c. A properly completed DROP application for service retirement as provided in this section; and d. Any other information required by the division. 3. The DROP participant is a retiree under the Florida Retirement System for all purposes, except for paragraph (5)(f) and subsection (9) and ss. 112.3173, 112.363, 121.053, and 121.122. DROP participation is final and may not be canceled by the participant after the first payment is credited during the DROP participation period. However, participation in DROP does not alter the participant's employment status, and the member is not deemed retired from employment until his or her deferred resignation is effective and termination occurs as defined in s. 121.021. 4. Elected officers are eligible to participate in DROP subject to the following: a. An elected officer who reaches normal retirement date during a term of office may defer the election to participate until the next succeeding term in that office. An elected officer who exercises this option may participate in DROP for up to 96 calendar months or no longer than the succeeding term of office, whichever is less. b. An elected or a nonelected participant may run for a term of office while participating in DROP and, if elected, extend the DROP termination date accordingly; however, if such additional term of office exceeds the 96-month limitation established in this paragraph, and the officer does not resign from office within such limitation, the retirement and the participant's DROP is null and void as provided in sub-subparagraph (c)5.d. c. An elected officer who is dually employed and elects to participate in DROP must terminate all employment relationships as provided in s. 121.021(39) for the nonelected position within the original period or maximum participation period as provided in this paragraph. For DROP participation ending: (1) Before July 1, 2010, the officer may continue employment as an elected officer as provided in s. 121.053. The elected officer shall be enrolled as a renewed member in the Elected Officers' Class or the Regular Class, as provided in ss. 121.053 and 121.122, on the first day of the month after termination of employment in the nonelected position and termination of DROP. Distribution of the DROP benefits shall be made as provided in paragraph (c). (11) On or after July 1, 2010, the officer may continue employment as an elected officer but must defer termination as provided in s. 121.053. d. An elected officer who has deferred termination as provided in s. 121.053 before June 30, 2023, is ineligible to extend DROP participation beyond 60 months. (c) Benefits payable under DROP.- 1. Effective on the date of DROP participation, the member's initial normal monthly benefit, including creditable service, optional form of payment, and average final compensation, and the effective date of retirement are fixed. The beneficiary established under the Florida Retirement System is the beneficiary eligible to receive any DROP benefits payable if the DROP participant dies before completing the period of DROP participation. If a joint annuitant predeceases the member, the member may name a beneficiary to receive accumulated DROP benefits payable. The retirement benefit, the annual cost of living adjustments provided in s. 121.101, and interest accrue monthly in the Florida Retirement System Trust Fund. For members whose DROP participation begins: a. Before July 1, 2011, the interest accrues at an effective annual rate of 6.5 percent compounded monthly, on the prior month's accumulated ending balance, up to the month of termination or death, except as provided in s. 121.053(7). b. On or after July 1, 2011, the interest accrues: (1) Through June 30, 2023, at an effective annual rate of 1.3 percent, compounded monthly, on the prior month's accumulated ending balance, up to the month of termination or death, except as provided in s. 121.053(7). (11) Beginning July 1, 2023, at an effective annual rate of 4 percent, compounded monthly, on the prior month's accumulated ending balance, up to the month of termination or death, except as provided in s. 121.053(7). 2875 17 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... 2. Each employee who elects to participate in DROP may elect to receive a lump-sum payment for accrued annual leave earned in accordance with agency policy upon beginning participation in DROP. The accumulated leave payment certified to the division upon commencement of DROP shall be included in the calculation of the member's average final compensation. The employee electing the lump-sum payment is not eligible to receive a second lump-sum payment upon termination, except to the extent the employee has earned additional annual leave which, combined with the original payment, does not exceed the maximum lump-sum payment allowed by the employing agency's policy or rules. An early lump-sum payment shall be based on the hourly wage of the employee at the time he or she begins participation in DROP. If the member elects to wait and receive a lump- sum payment upon termination of DROP and termination of employment with the employer, any accumulated leave payment made at that time may not be included in the member's retirement benefit, which was determined and fixed by law when the employee elected to participate in DROP. 3. The effective date of DROP participation and the effective date of retirement of a DROP participant shall be the first day of the month selected by the member to begin participation in DROP, provided such date is properly established, with the written confirmation of the employer, and the approval of the division, on forms required by the division. 4. Normal retirement benefits and any interest continue to accrue in DROP until the established termination date of DROP or until the member terminates employment or dies before such date, except as provided in s. 121.053(7). Although individual DROP accounts may not be established, a separate accounting of each member's accrued benefits under DROP shall be calculated and provided to the member. 5. At the conclusion of the member's participation in DROP, the division shall distribute the member's total accumulated DROP benefits, subject to the following: a. The division shall receive verification by the member's employer or employers that the member has terminated all employment relationships as provided in s. 121.021(39). b. The terminated DROP participant or, if deceased, the member's named beneficiary, shall elect on forms provided by the division to receive payment of the DROP benefits in accordance with one of the options listed below. If a member or beneficiary fails to elect a method of payment within 60 days after termination of DROP, the division shall pay a lump sum as provided in sub-sub-subparagraph (I). (I) Lump sum.—All accrued DROP benefits, plus interest, less withholding taxes remitted to the Internal Revenue Service, shall be paid to the DROP participant or surviving beneficiary. (II) Direct rollover.—All accrued DROP benefits, plus interest, shall be paid from DROP directly to the custodian of an eligible retirement plan as defined in s. 402(c)(8)(B) of the Internal Revenue Code. However, in the case of an eligible rollover distribution to the surviving spouse of a deceased member, an eligible retirement plan is an individual retirement account or an individual retirement annuity as described in s. 402(c)(9) of the Internal Revenue Code. (III) Partial lump sum.—A portion of the accrued DROP benefits shall be paid to DROP participant or surviving spouse, less withholding taxes remitted to the Internal Revenue Service, and the remaining DROP benefits must be transferred directly to the custodian of an eligible retirement plan as defined in s. 402(c)(8)(B) of the Internal Revenue Code. However, in the case of an eligible rollover distribution to the surviving spouse of a deceased member, an eligible retirement plan is an individual retirement account or an individual retirement annuity as described in s. 402(c)(9) of the Internal Revenue Code. The proportions must be specified by the DROP participant or surviving beneficiary. c. The form of payment selected by the DROP participant or surviving beneficiary must comply with the minimum distribution requirements of the Internal Revenue Code. d. A DROP participant who fails to terminate all employment relationships as provided in s. 121.021(39) shall be deemed as not retired, and the DROP election is null and void. Florida Retirement System membership shall be reestablished retroactively to the date of the commencement of DROP, and each employer with whom the member continues employment must pay to the Florida Retirement System Trust Fund the difference between the DROP contributions paid in paragraph (i) and the contributions required for the applicable Florida 2876 18 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... Retirement System class of membership during the period the member participated in DROP, plus 6.5 percent interest compounded annually. 6. The retirement benefits of any DROP participant who terminates all employment relationships as provided in s. 121.021(39) but is reemployed in violation of the reemployment provisions of subsection (9) are suspended during those months in which the retiree is in violation. Any retiree in violation of this subparagraph and any employer that employs or appoints such person without notifying the division to suspend retirement benefits are jointly and severally liable for any benefits paid during the reemployment limitation period. The employer must have a written statement from the retiree that he or she is not retired from a state- administered retirement system. Any retirement benefits received by a retiree while employed in violation of the reemployment limitations must be repaid to the Florida Retirement System Trust Fund, and his or her retirement benefits shall remain suspended until payment is made. Benefits suspended beyond the end of the reemployment limitation period apply toward repayment of benefits received in violation of the reemployment limitation. 7. The accrued benefits of any DROP participant, and any contributions accumulated under the program, are not subject to assignment, execution, attachment, or any legal process except for qualified domestic relations court orders, income deduction orders as provided in s. 61.1301, and federal income tax levies. 8. DROP participants are not eligible for disability retirement benefits as provided in subsection (4). (d) Death benefits under DROP.- 1. Upon the death of a DROP participant, the named beneficiary is entitled to apply for and receive the accrued benefits in DROP as provided in sub-subparagraph (c)5.b. 2. The normal retirement benefit accrued to DROP during the month of a participant's death is the final monthly benefit credited for such DROP participant. 3. Eligibility to participate in DROP terminates upon death of the participant. If the participant dies on or after the effective date of enrollment in DROP, but before the first monthly benefit is credited to DROP, Florida Retirement System benefits are paid in accordance with subparagraph (7)(c)1. or subparagraph 2. 4. A DROP participant's survivors are not eligible to receive Florida Retirement System death benefits as provided in paragraph (7)(d). (e) Cost-of-living adjustment.—On each July 1, the participant's normal retirement benefit shall be increased as provided in s. 121.101. (f) Retiree health insurance subsidy.—DROP participants are not eligible to apply for the retiree health insurance subsidy payments as provided in s. 112.363 until such participants have terminated employment and participation in DROP. (g) Renewed membership.—DROP participants are not eligible for renewed membership in the Florida Retirement System under ss. 121.053 and 121.122 until all employment relationships are terminated as provided in s. 121.021(39). (h) Employment limitation after DROP participation.—Upon termination as defined in s. 121.021, DROP participants are subject to the same reemployment limitations as other retirees. Reemployment restrictions applicable to retirees as provided in subsection (9) do not apply to DROP participants until their employment and participation in DROP are terminated. (i) Contributions.- 1. All employers paying the salary of a DROP participant filling a regularly established position shall contribute 8.0 percent of such participant's gross compensation for the period of July 1, 2002, through June 30, 2003, and the percentage of such compensation required by s. 121.71 thereafter, which shall constitute the entire employer DROP contribution with respect to such participant. Such contributions, payable to the Florida Retirement System Trust Fund in the same manner as required in s. 121.071, must be made as appropriate for each pay period and are in addition to contributions required for social security and the Retiree Health Insurance Subsidy Trust Fund. Such employer, social security, and health insurance subsidy contributions are not included in DROP. 2877 19 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... 2. The employer shall, in addition to subparagraph 1., also withhold one-half of the entire social security contribution required for the participant. Contributions for social security by each participant and each employer, in the amount required for social security coverage as provided by the federal Social Security Act, are in addition to contributions specified in subparagraph 1. 3. All employers paying the salary of a DROP participant filling a regularly established position shall contribute the percent of such participant's gross compensation required in s. 121.071(4), which constitutes the employer's health insurance subsidy contribution with respect to such participant. Such contributions must be deposited by the administrator in the Retiree Health Insurance Subsidy Trust Fund. (j) Forfeiture of retirement benefits.—This section does not remove DROP participants from the scope of s. 8(d), Art. II of the State Constitution, s. 112.3173, and paragraph (5)(f). DROP participants who commit a specified felony offense while employed are subject to forfeiture of all retirement benefits, including DROP benefits, pursuant to those provisions of law. (k) Administration of program.—The division shall adopt rules as necessary for the effective and efficient administration of this subsection. The division is not required to advise members of the federal tax consequences of an election related to the DROP but may advise members to seek independent advice. (14) PAYMENT OF BENEFITS.—This subsection applies to the payment of benefits to a payee (retiree or beneficiary) under the Florida Retirement System: (a) Federal income tax shall be withheld in accordance with federal law, unless the payee elects otherwise on Form W-4P. The division shall prepare and distribute to each recipient of monthly retirement benefits an appropriate income tax form that reflects the recipient's income and federal income tax withheld for the calendar year just ended. (b) Subject to approval by the division in accordance with rule 60S-4.015, Florida Administrative Code, a payee receiving retirement benefits under the system may also have the following payments deducted from his or her monthly benefit: 1. Premiums for life and health-related insurance policies from approved companies. 2. Life insurance premiums for the State Group Life Insurance Plan, if authorized in writing by the payee and by the department. 3. Repayment of overpayments from the Florida Retirement System Trust Fund, the State Employees' Health Insurance Trust Fund, or the State Employees' Life Insurance Trust Fund, upon notification of the payee. 4. Payments to an alternate payee for alimony or child support pursuant to an income deduction order under s. 61.1301, or division of marital assets pursuant to a qualified domestic relations order under s. 222.21. 5. Payments to the Internal Revenue Service for federal income tax levies, upon notification of the division by the Internal Revenue Service. (c) A payee must notify the division of any change in his or her address. The division may suspend benefit payments to a payee if correspondence sent to the payee's mailing address is returned due to an incorrect address. Benefit payments shall be resumed upon notification to the division of the payee's new address. (d) A payee whose retirement benefits are reduced by the application of maximum benefit limits under s. 415(b) of the Internal Revenue Code, as specified in s. 121.30(5), shall have the portion of his or her calculated benefit in the Florida Retirement System Pension Plan which exceeds such federal limitation paid through the Florida Retirement System Preservation of Benefits Plan, as provided in s. 121.1001. (e) The Division of Retirement may issue retirement benefits payable for division of marital assets pursuant to a qualified domestic relations order directly to the alternate payee, any court order to the contrary notwithstanding, in order to meet Internal Revenue Code requirements. (f) A benefit may not be reduced for the purpose of preserving the member's eligibility for a federal program. (g) The division shall adopt rules establishing procedures for determining that persons to whom benefits are being paid are still living. The division shall suspend the benefits being paid to any payee if it is unable to contact such payee and to confirm that he or she is still living. 2878 20 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... (15) VOLUNTEER SERVICES.-Employers may establish postemployment volunteer programs to allow retirees to provide civic, charitable, and humanitarian services during the first 12 calendar months following retirement without causing the retiree to violate the requirement concerning termination of employment as defined in 26 C.F.R. s. 1.409A-1(h)(1)(ii), provided that the program meets all of the following criteria: (a) Before the date of retirement, there was no agreement or understanding between the employer and the retiree that the retiree would provide any service for the employer. (b) The employer or a third party may not provide any form of compensation, including any cash equivalents, to a volunteer for his or her volunteer service. (c) Except as otherwise provided in law, a volunteer may not be provided any employee benefits, including health or life insurance benefits. However, a volunteer may be provided certain perquisites necessary for, and for the limited purpose of, completing tasks associated with the volunteer program, such as an assigned uniform or the provision of equipment. (d) The number of volunteer hours per week, including training hours, that the volunteer may provide is no more than 20 percent of the number of hours that the volunteer was expected to work per week before his or her date of retirement. (e) There is a clear distinction between the duties of a volunteer and the duties of an employee. (f) The schedule of a volunteer, including the number of hours volunteered and the number and type of assignments for which he or she agrees to volunteer, is controlled by the volunteer. (g) The employer and the retiree are both required to maintain adequate records to document adherence to the criteria listed in this subsection. The records must be made available to the department or state board upon request. History.-s. 9, ch. 70-112; s. 1, ch. 71-22; s. 1, ch. 72-332; s. 1, ch. 72-334; s. 2, ch. 72-344; s. 3, ch. 72-345; s. 3, ch. 72-388; ss. 6, 7, ch. 74-302; s. 2, ch. 74-328; s. 2, ch. 74-376; s. 1, ch. 75-86; s. 1, ch. 77-286; s. 6, ch. 78-308; s. 3, ch. 79-375; s. 2, ch. 80-126; s. 1, ch. 80-128; ss. 1, 3, ch. 80-130; s. 3, ch. 80-242; s. 5, ch. 81-307; s. 1, ch. 83-58; s. 7, ch. 83-76; ss. 1, 2, ch. 84-11; ss. 10, 20, ch. 84-266; s. 1, ch. 85-137; s. 4, ch. 85-220; s. 1, ch. 85-246; s. 3, ch. 86-172; s. 1, ch. 87-149; s. 1, ch. 88-61; s. 2, ch. 88-238; s. 13, ch. 88-382; s. 2, ch. 89-220; s. 1, ch. 89-260; s. 15, ch. 89-367; s. 13, ch. 90-274; s. 5, ch. 90-301; s. 1, ch. 91-276; s. 7, ch. 92-122; s. 5, ch. 93-149; s. 8, ch. 93-193; s. 4, ch. 93-285; s. 773, ch. 95-147; s. 2, ch. 95-338; s. 7, ch. 96-368; s. 2, ch. 97-154; s. 8, ch. 97-180; s. 1, ch. 98-18; s. 9, ch. 98-138; s. 9, ch. 98-292; s. 7, ch. 98-413; s. 54, ch. 99-2; s. 5, ch. 99-7; s. 6, ch. 99-9; s. 37, ch. 99-255; s. 1, ch. 99-389; s. 11, ch. 99-392; s. 1, ch. 2000-167; ss. 15, 17, ch. 2000-169; s. 7, ch. 2000-347; s. 2, ch. 2001-47; s. 19, ch. 2001-60; s. 2, ch. 2001-235; s. 5, ch. 2002-177; ss. 14, 15, ch. 2002-273; s. 899, ch. 2002-387; s. 2, ch. 2003-260; s. 8, ch. 2003-391; s. 15, ch. 2004-260; s. 25, ch. 2004-295; s. 3, ch. 2005-108; s. 1, ch. 2005-134; s. 2, ch. 2005-253; s. 29, ch. 2006-178; s. 20, ch. 2008-4; s. 4, ch. 2008-108; s. 91 ch. 2009-209; s. 15, ch. 2010-5; s. 15, ch. 2011-68; s. 6, ch. 2012-222; s. 17, ch. 2013-15; s. 1, ch. 2016-213; s. 9, ch. 2017-88; s. 7, ch. 2018-3; s. 10, ch. 2018-110; s. 1, ch. 2018-150; s. 1, ch. 2020-19; s. 1, ch. 2022-159; s. 1, ch. 2023-111; ss. 7, 8, ch. 2023-193; s. 2, ch. 2023-316. 1 Note.-The cross reference is erroneous; s. 121.091(29)(b)3. does not exist. Section 121.021(29)(b)3. references the age and years of creditable service for a special risk member in the Special Risk Class. 2Note.-Section 9, ch. 2003-260, provides in pertinent part that "[i]t is the intent of the Legislature that the costs attributable to the modifications to the retirement laws by this act regarding the reemployment of instructional personnel shall be funded by an increase in payroll contribution rates beginning in fiscal year 2004-2005." 3 Note.- A. Section 11, ch. 2001-235, as amended by s. 8, ch. 2002-177, provides that "[i]t is the intent of the Legislature that the costs attributable to the additional cost-of-living increase for special risk retirees and Deferred Retirement Option Program participants as provided under section 2 shall be funded by recognition of excess actuarial assets, amortized over 30 years with the payments assumed to remain relatively stable when expressed as a percentage of payroll. For fiscal year 2001-2002, the payment shall be$9.3 million. For fiscal year 2002-2003, the payment shall be$15.1 million, and, thereafter, payments shall increase by 5 percent per year. If insufficient funds are available to fund this additional cost through recognition of excess actuarial assets in fiscal year 2002-2003 and any year thereafter, and there remains an unfunded actuarial liability attributable to the one-time cost-of-living increase provided under section 2, the payroll contribution rate for the Special Risk Class of the Florida Retirement System shall be increased by .93 percent effective July 1 of that year, unless the Legislature provides an alternative funding mechanism before that date." Section 2, ch. 2001-235, amended s. 121.091(13)(b), relating to the Deferred Retirement Option Program, to add a provision relating to elected officers. The intended reference may be to s. 10, ch. 2001-235, which provides a one-time special cost-of-living increase for members of the Special Risk Class. B. Section 9, ch. 2003-260, provides in pertinent part that "[i]t is the intent of the Legislature that the costs attributable to the 2879 21 of 22 2/5/2024, 11:25 AM Statutes&Constitution:View Statutes : Online Sunshine http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Stat... modifications to the retirement laws by this act regarding the reemployment of instructional personnel shall be funded by an increase in payroll contribution rates beginning in fiscal year 2004-2005." Copyright © 1995-2024 The Florida Legislature • Privacy Statement • Contact Us 2880 22 of 22 2/5/2024, 11:25 AM CHAPTER 2023-316 Committee Substitute for Committee Substitute for House Bill No. 1121 An act relating to the Florida Retirement System;amending s. 121.021,F.S.; revising and providing definitions; amending s. 121.091, F.S.; authorizing employers to establish volunteer programs; establishing criteria for such programs; providing an effective date. Be It Enacted by the Legislature of the State of Florida: Section 1. Subsection (39) of section 121.021, Florida Statutes, is amended, and subsection (65) is added to that section, to read: 121.021 Definitions.—The following words and phrases as used in this chapter have the respective meanings set forth unless a different meaning is plainly required by the context: (39)(a) "Termination" occurs, except as provided in paragraphs pafa- geaj)-h (b) and c , when a member ceases all employment, which term includes the provision of services. M,.'� with all paFtieipating employers, however: 1. For retirements effective before July 1,2010,if a member is employed by any steh employer within the next calendar month, termination shall be deemed not to have occurred.A leave of absence constitutes a continuation of the employment relationship,except that a leave of absence without pay due to disability may constitute termination if such member makes application for and is approved for disability retirement in accordance with s. 121.091(4). The department or state board may require other evidenee of termination as it deems 2. For retirements effective on or after July 1, 2010, if a member is employed by any such employer within the next 6 calendar months, termination shall be deemed not to have occurred. A leave of absence constitutes a continuation of the employment relationship, except that a leave of absence without pay due to disability may constitute termination if such member makes application for and is approved for disability retirement in accordance with s. 121.091(4).The department, state board may req other evidenee of termination as it deems neeessar-y. (b) "Termination" for a member ending_participation ,.leeting to r�„� eipate in the Deferred Retirement Option Program occurs when the program participant ceases all employment, which term includes the provision of services,relationships with all p rtieipa�� ;.�+n employers in accordance with s. 121.091(13), however: 1 CODING: Words rfr�v^^ are deletions; words underlined are additions. 2881 Ch. 2023-316 LAWS OF FLORIDA Ch. 2023-316 1. For termination dates occurring before July 1,2010,if a the member is employed by any sueh employer within the next calendar month, termina- tion shall wi44 be deemed not to have occurred, except as provided in s. 121.091(13)(b)4.c. A leave of absence constitutes shall ,,enstiti a con- tinuation of the employment relationship. 2. For termination dates occurring on or after July 1, 2010, if a the member becomes employed by any st"employer within the next 6 calendar months, termination shall will be deemed not to have occurred, except as provided in s. 121.091(13)(b)4.c. A leave of absence constitutes a continua- tion of the employment relationship. (c) Effective July 1,2011, "termination"for a member receiving a refund of employee contributions occurs when a member ceases all employment, which term includes the provision of services, relationships with all p aftee i atin employers for 3 calendar months. A leave of absence constitutes a continuation of the employment relationship. All terminations must be a termination of employment consistent with 26 C.F.R. s. 1.409A-1(h)(1)(ii). After July 1, 2023, volunteer services do not constitute employment by, or provision of services to, an employer. The department or state board may require any evidence of termination necessary to determine compliance with this chapter or the rules adopted thereunder. (65) "Volunteer services" means services provided in accordance with s. 121.091(15). Section 2. Subsection (15) is added to section 121.091, Florida Statutes, to read: 121.091 Benefits payable under the system.—Benefits may not be paid under this section unless the member has terminated employment as provided in s. 121.021(39)(a) or begun participation in the Deferred Retirement Option Program as provided in subsection (13), and a proper application has been filed in the manner prescribed by the department. The department may cancel an application for retirement benefits when the member or beneficiary fails to timely provide the information and documents required by this chapter and the department's rules. The department shall adopt rules establishing procedures for application for retirement benefits and for the cancellation of such application when the required information or documents are not received. (15) VOLUNTEER SERVICES.—Employers may establish postemploy- ment volunteer programs to allow retirees to provide civic, charitable, and humanitarian services during the first 12 calendar months following retirement without causing the retiree to violate the requirement concerning termination of employment as defined in 26 C.F.R. s. 1.409A-1(h)(1)(ii), provided that the program meets all of the following criteria: 2 CODING:Words r��v^^ are deletions; words underlined are additions. 2882 Ch. 2023-316 LAWS OF FLORIDA Ch. 2023-316 (a) Before the date of retirement, there was no agreement or under- standing between the employer and the retiree that the retiree would provide any service for the employer. (b) The employer or a third party may not provide any form of compensation, including any cash equivalents, to a volunteer for his or her volunteer service. (c) Except as otherwise provided in law,a volunteer may not be provided any employee benefits,including health or life insurance benefits. However, a volunteer may be provided certain perquisites necessary for, and for the limited purpose of, completing tasks associated with the volunteer program, such as an assigned uniform or the provision of equipment. (d) The number of volunteer hours per week, including training hours, that the volunteer may provide is no more than 20 percent of the number of hours that the volunteer was expected to work per week before his or her date of retirement. (e) There is a clear distinction between the duties of a volunteer and the duties of an employee. (f) The schedule of a volunteer, including the number of hours volun- teered and the number and type of assignments for which he or she agrees to volunteer, is controlled by the volunteer. (g) The employer and the retiree are both required to maintain adequate records to document adherence to the criteria listed in this subsection. The records must be made available to the department or state board upon request. Section 3. This act shall take effect July 1, 2023. Approved by the Governor June 30, 2023. Filed in Office Secretary of State June 30, 2023. 3 CODING: Words -t�v^^ are deletions; words underlined are additions. 2883 1„ 09A--1 IDe-fliirniCioirn and covered p1lairn ,,,26 „11=„IIR„§1„ 09A--1 Code of Federal Regulations Title 26.Internal Revenue Chapter 1.Internal Revenue Service,Department of the Treasury Subchapter A.Income Tax Part I.Income Taxes(Refs&Annos) Normal Taxes and Surtaxes Deferred Compensation,Etc. Pension,Profit—Sharing, Stock Bonus flans,Etc. 26 C.F.R. § 1.409A-1,Treas.Reg. § 1.409A-1 § 1.409A-1 Definitions and covered plans. Effective:July 31,2007 Currentness (a)Nonqualified deferred compensation plan—(l)In general.Except as otherwise provided in this paragraph(a),the term nonqualified deferred compensation plan means any plan (within the meaning of paragraph(c) of this section)that provides for the deferral of compensation(within the meaning of paragraph(b)of this section). Whether a plan provides for the deferral of compensation generally is determined at the time the service provider obtains a legally binding right to the compensation under the plan,and is not affected by any retroactive change to the plan to characterize the right as one that does not provide for the deferral of compensation.For example,amounts deferred under a nonqualified deferred compensation plan do not become an excluded death benefit if the plan is amended so that the amounts are payable only upon the death of the service provider. If a principal purpose of a plan is to achieve a result with respect to a deferral of compensation that is inconsistent with the purposes of section 409A,the Commissioner may treat the plan as a nonqualified deferred compensation plan for purposes of section 409A and the regulations thereunder. (2) Qualified employer plans.The term nonqualified deferred compensation plan does not include a qualified employer plan. The term qualified employer plan means any of the following plans: (i) Any plan described in section 401(a) and a trust exempt from tax under section 501(a) or that is described in section 402(d). (ii)Any annuity plan described in section 403(a). (iii)Any annuity contract described in section 403(b). (iv)Any simplified employee pension(within the meaning of section 408(k)). (v)Any simple retirement account(within the meaning of section 408(p)). (vi)Any plan under which an active participant makes deductible contributions to a trust described in section 501(c)(I8). ll, ti;l ln�,z� 2024 "r fol"I'fS0"1 lj'tr,l s ``.j,o t;la o ol I a J o/r ll"I"',I l"I', //till'.';, 1 2884 1„ 09A--1 IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 (vii)Any eligible deferred compensation plan(within the meaning of section 457(b)). (viii)Any plan described in section 415(m). (ix) Any plan described in§ 1022(i)(2) of the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829, 942)(Sept. 2, 1974)(ERISA). (3)Certain foreign plans—(i)Participation addressed by treaty.With respectto an individual for ataxable year,the term nonqualified deferred compensation plan does not include any scheme,trust,arrangement,or plan maintained with respect to such individual,to the extent contributions made by or on behalf of such individual to such scheme,trust,arrangement, or plan,or credited allocations,accrued benefits,earnings,or other amounts constituting income,of such individual under such scheme,trust, arrangement, or plan, are excludable by such individual for Federal income tax purposes pursuant to any bilateral income tax convention,or other bilateral or multilateral agreement,to which the United States is a party. (ii)Participation by nonresident aliens,certain resident aliens,and bona fide residents of possessions.With respect to an alien individual for a taxable year during which such individual is a nonresident alien, a resident alien classified as a resident alien solely under section 7701(b)(1)(A)(H) (and not section 7701(b)(1)(A)(i)), or a bona fide resident of a possession(within the meaning of section 937(a)),the term nonqualified deferred compensation plan does not include any broad-based foreign retirement plan(within the meaning of paragraph(a)(3)(v)of this section). (iii) Participation by U.S. citizens and lawful permanent residents. With respect to an individual for a given taxable year during which such individual is a U.S.citizen or a resident alien classified as a resident alien under section 7701(b)(1) (A)(i),other than an individual who is also a bona fide resident of a possession(within the meaning of section 937(a)),the term nonqualified deferred compensation plan does not include a broad-based foreign retirement plan(within the meaning of paragraph(a)(3)(v) of this section),but only with respect to a plan, or a portion of a plan where such portion may be distinguished, providing for nonelective deferrals of modified foreign earned income, and earnings with respect to such nonelective deferrals,and only to the extent that the amounts deferred under all such plans of the service recipient, or all portions of such plans,in which the service provider participates in such taxable year,do not exceed the applicable limits under section 415(b)(applied to nonaccount balance plans as defined in paragraph(c)(2)(i)(C)of this section)and section 415(c) (applied to account balance plans as defined in paragraph(c)(2)(i)(A) of this section)that would be applicable if such plans were plans subject to section 415 and the modified foreign earned income of such individual were treated as compensation for purposes of applying section 415(b)and(c).For purposes of this paragraph(a)(3)(iii),the term modified foreign earned income means foreign earned income as defined in section 911(b)(1)without regard to section 911(b)(1)(13) (iv)and without regard to the requirement that the income be attributable to services performed during the period described in section 911(d)(1)(A) or (B). The provisions of this paragraph(a)(3)(iii) do not apply to any individual with respect to any taxable year in which the individual is simultaneously eligible to participate in a broad-based foreign retirement plan and a qualified employer plan described in paragraph(a)(2) of this section. For purposes of this paragraph(a)(3) (iii),an individual is eligible to participate in a qualified employer plan if under the terms of the plan and without further amendment or action by the plan sponsor, the individual is eligible to make or receive contributions or accrue benefits under the plan(regardless of whether the individual has elected to participate in the plan). (iv)Plans subject to a totalization agreement and similar plans.The term nonqualified deferred compensation plan does not include any social security system of a jurisdiction to the extent that benefits provided under or contributions made to ll, ;'l'l,A,o 2024 r ``.Jo cI,;i o oI f a o/r 11"I"',I l"I', / oI k's 2 2885 1 A09A--1 IDe-Iiiirniiboirn airnd covered p1lairn ..,26 J1:J1R..§1 A09A--1 the system are subject to an agreement entered into pursuant to section 233 of the Social Security Act(42 U.S.C.433)with any foreign jurisdiction. In addition,the term nonqualified deferred compensation plan does not include a social security system of a foreign jurisdiction to the extent that benefits are provided under or contributions are made to a government- mandated plan as part of that foreign jurisdiction's social security system. (v) Broad-based foreign retirement plan. The term broad based foreign retirement plan means a scheme, trust, arrangement,or plan(regardless of whether sponsored by a U.S.person)that is written and that,in the case of an employer- maintained plan, satisfies the following conditions: (A)The plan is nondiscriminatory insofar as the employees who,under the terms of the plan(alone or in combination with other comparable plans)and without further amendment or action by the employer,are eligible to make or receive contributions or accrue benefits under the plan other than earnings (regardless of whether the employee has elected to participate in the plan), are a wide range of employees, substantially all of whom are nonresident aliens,resident aliens classified as resident aliens solely under section 7701(b)(1)(A)(ii) (and not section`7701(b)(1)(A)(i)),or bona fide residents of a possession(within the meaning of section 937(a)),including rank and file employees. (B) The plan (alone or in combination with other comparable plans) actually provides significant benefits for a substantial majority of such covered employees. (C)The benefits actually provided under the plan to such covered employees are nondiscriminatory. (D) The plan contains provisions or is the subject of tax law provisions or other legal restrictions that generally discourage employees from using plan benefits for purposes other than retirement or restrict access to plan benefits before separation from service, including (but not limited to), restricting in-service distributions except in events similar to an unforeseeable emergency (as defined in § 1.409A-3(i)(3)(i)) or hardship (as defined for purposes of section 401(k)(2)(13)(i)(W)),or for educational purposes or the purchase of a primary residence. (4) Section 457 plans. A nonqualified deferred compensation plan under section 457(f) may constitute a nonqualified deferred compensation plan for purposes of this paragraph(a). The rules of section 409A apply to nonqualified deferred compensation plans separately and in addition to any requirements applicable to such plans under section 457(f). In addition, nonelective deferred compensation of non-employees described in section 457(e)(12)and a grandfathered plan or arrangement described in § 1.457 2(k)(4) may constitute a nonqualified deferred compensation plan for purposes of this paragraph(a).The term nonqualified deferred compensation plan does not include a length of service award to a bona fide volunteer under section 457(e)(11)(A)(ri).For purposes of the application of section 409A to a plan to which section 457 applies,a payment under the plan generally means the provision of cash or property to the service provider,provided that for purposes of the application of the short-term deferral rule set forth in paragraph(b)(4)of this section,the inclusion in income of an amount under section 457(f)is treated as a payment of the amount. (5) Certain welfare benefits. The term nonqualified deferred compensation plan does not include a plan, or a portion of a plan, to the extent that the plan provides bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefits.For these purposes,the terms"disability pay"and"death benefits"have the same meanings as provided in §31.3121(v)(2) 1(b)(4)(iv)(C)of this chapter,provided that for purposes of this paragraph, such disability pay and death benefits may be provided through insurance and the lifetime benefits payable under the plan are not treated as including the value of any taxable term life insurance coverage or taxable disability insurance coverage provided under the plan.The ll, ;'l'l,A,o 2024 s ``'J,o t;la o ol I a o/r l l"I"',I l"I', //till's 3 2886 1 A09A--1 IDe-15irniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 term nonqualified deferred compensation plan also does not include any Archer Medical Savings Account as described in section 220, any Health Savings Account as described in section 223, or any other medical reimbursement arrangement, including a health reimbursement arrangement,that satisfies the requirements of section 105 and section 100 such that the benefits or reimbursements provided under such arrangement are not includible in income. (b) Deferral of compensation—(l) In general. Except as otherwise provided in paragraphs (b)(3) through(b)(12) of this section,a plan provides for the deferral of compensation if,under the terms of the plan and the relevant facts and circumstances, the service provider has a legally binding right during a taxable year to compensation that,pursuant to the terms of the plan,is or may be payable to(or on behalf of)the service provider in a later taxable year. Such compensation is deferred compensation for purposes of section 409A,this section and§§ 1.409A 2 through 1.409A 6. A legally binding right to an amount that will be excluded from income when and if received does not constitute a deferral of compensation,unless the service provider has received the right in exchange for,or has the right to exchange the right for,an amount that will be includible in income(other than due to participation in a cafeteria plan described in section 125).A service provider does not have a legally binding right to compensation to the extent that compensation may be reduced unilaterally or eliminated by the service recipient or other person after the services creating the right to the compensation have been performed.However,if the facts and circumstances indicate that the discretion to reduce or eliminate the compensation is available or exercisable only upon a condition, or the discretion to reduce or eliminate the compensation lacks substantive significance,a service provider will be considered to have a legally binding right to the compensation.Whether the discretion to reduce or eliminate the compensation lacks substantive significance depends on all the relevant facts and circumstances. However, where the service provider to whom the compensation may be paid has effective control of the person retaining the discretion to reduce or eliminate the compensation, or has effective control over any portion of the compensation of the person retaining the discretion to reduce or eliminate the compensation, or is a member of the family (as defined in section 207(c)(4) applied as if the family of an individual includes the spouse of any member of the family) of the person retaining the discretion to reduce or eliminate the compensation, the discretion to reduce or eliminate the compensation will not be treated as having substantive significance.For this purpose,compensation is not considered subject to unilateral reduction or elimination merely because it may be reduced or eliminated by operation of the objective terms of the plan, such as the application of a nondiscretionary, objective provision creating a substantial risk of forfeiture. Similarly,a service provider does not fail to have a legally binding right to compensation merely because the amount of compensation is determined under a formula that provides for benefits to be offset by benefits provided under another plan (including a plan that is qualified under section 401(a)), or because benefits are reduced due to actual or notional investment losses,or,in a final average pay plan, subsequent decreases in compensation. (2)Earnings.References to the deferral of compensation or deferred compensation include references to earnings. When the right to earnings is specified under the terms of the plan,the legally binding right to earnings arises at the time of the deferral of the compensation to which the earnings relate.A plan may provide that the time and form of payment of earnings is treated separately from the time and form of payment of the underlying compensation, so that,provided that the rules of section 409A are otherwise met, a plan may provide that earnings will be paid at a separate time or in a separate form from the payment of the underlying compensation. For the application of the deferral election rules to current payments of earnings and dividend equivalents, see§ 1.409A 3(c). (3)Compensation payable pursuant to the service recipient's customary payment timing arrangement.A deferral of compensation does not occur solely because compensation is paid after the last day of the service provider's taxable year pursuant to the timing arrangement under which the service recipient normally compensates service providers for services performed during a payroll period described in section 3401(b), or with respect to a non-employee service provider, a period not longer than the payroll period described in section 3401(b)or if no such payroll period exists,a period not longer than the earlier of the normal timing arrangement under which the service provider normally compensates non-employee service providers or 30 days after the end of the service provider's taxable year. ll, ;T1,A,o 2024 ``,J,o t;la o ol I a o/r 11"I"',I l"I', //till's 4 2887 1„409AA IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11.11R..§1„409AA (4) Short-term deferrals—(i) In general. A deferral of compensation does not occur under a plan with respect to any payment(as defined in § 1.409A 2(b)(2))that is not a deferred payment,provided that the service provider actually or constructively receives such payment on or before the last day of the applicable 2 '/2 month period. The following rules apply for purposes of this paragraph(b)(4)(i): (A)The applicable 2'/2 month period is the period ending on the later of the 15th day of the third month following the end of the service provider's first taxable year in which the right to the payment is no longer subject to a substantial risk of forfeiture or the 15th day of the third month following the end of the service recipient's first taxable year in which the right to the payment is no longer subject to a substantial risk of forfeiture. (B)A payment is treated as actually or constructively received if the payment is includible in income,including if the payment is includible in income under section 83,the economic benefit doctrine, section 402(b),or section 457(f). (C)A right to a payment that is never subject to a substantial risk of forfeiture is considered to be no longer subject to a substantial risk of forfeiture on the first date the service provider has a legally binding right to the payment. (D) A payment is a deferred payment if it is made pursuant to a provision of a plan that provides for the payment to be made or completed on or after any date, or upon or after the occurrence of any event, that will or may occur later than the end of the applicable 2 '/2 month period, such as a separation from service,death, disability, change in control event,specified time or schedule of payment,or unforeseeable emergency,regardless of whether an amount is actually paid as a result of the occurrence of such a payment date or event during the applicable 2'/2 month period.If a plan provides that the service provider or service recipient may make an election under the plan(including an election under § 1.409A-2(a)(4)) of a different payment date, schedule, or event, such right is disregarded for this purpose. In such cases, whether a plan provides for a deferred payment is determined based on the payment date, schedule, or event that would apply if no such election were made, except that if the plan would not provide for a deferred payment absent such an election, and the service provider or service recipient makes such an election, whether the plan provides for a deferred payment is determined based upon the payment date, schedule,or event that the service provider or service recipient in fact elected. (E)A stock right provides for a deferred payment if such right includes any provision pursuant to which the holder of the stock right will or may have the right to exercise the stock right after the applicable 2 '/2 month period. (F) This paragraph(b)(4)(i) is applied separately to each payment(as defined in § 1.409A 2(b)(2)) required to be made under a plan. (G)If a plan provides for a deferred payment with respect to part of a payment(for example a life annuity or a series of installment amounts treated as a single payment), the plan provides for a deferred payment with respect to the entire payment. (ii) Certain delayed payments. A payment that otherwise qualifies as a short-term deferral under paragraph (b)(4)(i) of this section but is made after the applicable 2 '/2 month period may continue to qualify as a short-term deferral if the taxpayer establishes that it was administratively impracticable to make the payment by the end of the applicable 2 '/2 month period and,as of the date upon which the legally binding right to the compensation arose,such impracticability was ll, ti;'l'lnAzV 20 24 `'J,o t;la o ol lf a o/r 11"1-I,1 1"1', AA)I .s 2888 1„ 09A--1 IDe-fliirniCio n and covered p1lairn ,,,26 „11=„IIR„§1„ 09A--1 unforeseeable, or the taxpayer establishes that making the payment by the end of the applicable 2 '/2 month period would have j eopardized the ability of the service recipient to continue as a going concern,and provided further that the payment is made as soon as administratively practicable or as soon as the payment would no longer have such effect.For purposes of this paragraph(b)(4)(ii),an action or failure to act of the service provider or a person under the service provider's control, such as a failure to provide necessary information or documentation,is not an unforeseeable event.In addition,a payment that otherwise qualifies as a short-term deferral under paragraph(b)(4)(i) of this section but is made after the applicable 2 '/2 month period may continue to qualify as a short-term deferral if the taxpayer establishes that the service recipient reasonably anticipated that the service recipient's deduction with respect to such payment otherwise would not be permitted by application of section 102(m), and, as of the date the legally binding right to the payment arose, a reasonable person would not have anticipated the application of section 102(m) at the time of the payment, and provided further that the payment is made as soon as reasonably practicable following the first date on which the service recipient anticipates or reasonably should anticipate that,if the payment were made on such date, the service recipient's deduction with respect to such payment would no longer be restricted due to the application of section 102(m).For additional rules applicable to certain transaction-based compensation, see § 1.409A 3(i)(5)(iv)(A). (iii) Examples. The following examples illustrate the provisions of this paragraph(b)(4). In these examples, except as otherwise noted, each employee and each employer has a calendar year taxable year and each employee is an individual who is employed by the specified employer. Example 1. On November 1, 2008,Employer Z awards a bonus to Employee A such that Employee A has a legally binding right to the payment as of November 1, 2008, that is not subject to a substantial risk of forfeiture. The bonus plan does not provide for a payment date or a deferred payment. The bonus plan will not be considered to have provided for a deferral of compensation if the bonus is paid or made available to Employee A on or before March 15,2009. Example 2.Employer Y has a taxable year ending August 31.On November 1,2008,Employer Y awards abonus to Employee B so that Employee B has a legally binding right to the payment as of November 1,2008,that is not subject to a substantial risk of forfeiture.The bonus plan does not provide for a payment date or a deferred payment.The bonus plan will not be considered to have provided for a deferral of compensation if the bonus is paid or made available to Employee B on or before November 15,2009. Example 3.On November 1,2008,Employer X awards abonus to Employee C such that Employee C has a legally binding right to the payment as of November 1,2008.Under the bonus plan,Employee C will forfeit the bonus unless Employee C continues performing services through December 31,2010. The right to the payment is subject to a substantial risk of forfeiture through December 31,2010.Employee C has the right to make a written election not later than December 31,2009,to receive the bonus on or after December 31, 2015,but Employee C does not make such election. The bonus plan does not provide for a default payment date or a deferred payment in the absence of an election by Employee C.The bonus plan will not be considered to have provided for a deferral of compensation if the bonus is paid or made available to Employee C on or before March 15,2011. Example 4. On November 1, 2008,Employer W awards a bonus to Employee D such that Employee D has a legally binding right to the payment as of November 1,2008.Under the bonus plan,the bonus will be determined based on services performed during the period from January 1,2009 through December 31,2010.The bonus is scheduled to be paid as a lump sum payment on February 15, 2011. Under the bonus plan, Employee D will forfeit the bonus unless Employee D continues performing services through the scheduled payment date(February 15,2011).Provided that at all times before the scheduled payment date Employee D is required to continue to perform services to retain the right to the bonus,and the bonus is paid on or before March 15,2012,the bonus plan will not be considered to have provided for a deferral of compensation. Example 5. On November 1, 2008,Employer V awards a bonus to Employee E such that Employee E has a legally binding right to the payment as of November 1, 2008. Under the bonus plan, Employee E will forfeit the bonus unless Employee E continues performing services through December 31,2010.Under the bonus plan,the bonus is scheduled to be paid as a lump ll, ;'l'l,A,o 2024 ``.J,o t;la o ol lf a o/r 11-1-I,1 1"1', //till'.';, i 2889 1 A09A-1 De-15iniCioins aind covered p1lain ..,26 ..11®..IIR..§1 A09A-1 sum payment on July 1, 2011. By specifying a payment date after the applicable 2 '/2 month period, the bonus plan provides for a deferred payment. The bonus plan provides for a deferral of compensation, and will not qualify as a short-term deferral regardless of whether the bonus is paid or made available on or before March 15,2011 (and generally any payment before June 1,2011 would constitute an impermissible acceleration of a payment). Example 6. On November 1, 2008, Employer U awards a bonus to Employee F such that Employee F has a legally binding right to the payment as of November 1,2008,that is not subject to a substantial risk of forfeiture.The bonus plan provides for a lump sum payment upon Employee F's separation from service.Because the separation from service is an event that may occur after the applicable 2 '/2 month period,the bonus plan provides for a deferred payment and therefore provides for a deferral of compensation.Accordingly,the bonus plan will not qualify as a short-term deferral regardless of whether Employee F separates from service and the bonus is paid or made available on or before March 15,2009. Example 7. On November 1, 2008, Employer T grants Employee G a legally binding right to the payment of a life annuity with the first annuity payment on November 1, 2013,provided that Employee G continues performing services for Employer T continuously through November 1, 2013. Because the life annuity is treated as a single payment, and because all payments of the life annuity may not occur during the applicable 2 '/2 month period,the plan provides for a deferred payment and none of the amounts payable under the annuity will qualify as a short-term deferral, so that section 409A applies to all amounts that are payable under the plan. Example 8. On November 1, 2008,Employer S grants Employee H a stock right providing for an exercise price less than the fair market value of the underlying stock on November 1, 2008. The stock right is subject to a substantial risk of forfeiture requiring services through November 1,2010.The stock right becomes exercisable when the substantial risk of forfeiture lapses and expires on November 1, 2013. Employee H continues providing services through November 1, 2010, at which time the substantial risk of forfeiture lapses.The stock right provides for a deferred payment and will not qualify as a short-term deferral regardless of whether Employee H exercises the stock right on or before March 15,2011. (5) Stock options, stock appreciation rights, and other equity-based compensation—(i) Stock rights—(A) Nonstatutory stock options not providing for the deferral of compensation. An option to purchase service recipient stock does not provide for a deferral of compensation if— (1)The exercise price may never be less than the fair market value of the underlying stock(disregarding lapse restrictions as defined in § 1.83-3(i)) on the date the option is granted and the number of shares subject to the option is fixed on the original date of grant of the option; (2)The transfer or exercise of the option is subject to taxation under section 83 and§ 1.83 7;and (3)The option does not include any feature for the deferral of compensation other than the deferral of recognition of income until the later of the following: (i)The exercise or disposition of the option under§ 1.83 7. (ii) The time the stock acquired pursuant to the exercise of the option first becomes substantially vested (as defined in§ 1.83 3(b)). ll, ;l'l,A,ol 2024 "r `'JIo c;a, lr"I �,o oI II a o/rs'11I1"1"1 1; 11', / oI '"s 7 2890 1„ 09A--1 IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 (B) Stock appreciation rights not providing for the deferral of compensation. A right to compensation based on the appreciation in value of a specified number of shares of service recipient stock occurring between the date of grant and the date of exercise of such right(a stock appreciation right)does not provide for a deferral of compensation if— (1)Compensation payable under the stock appreciation right cannot be greater than the excess of the fair market value of the stock(disregarding lapse restrictions as defined in§1.83 3(i))on the date the stock appreciation right is exercised over an amount specified on the date of grant of the stock appreciation right(the stock appreciation right exercise price),with respect to a number of shares fixed on or before the date of grant of the right; (2) The stock appreciation right exercise price may never be less than the fair market value of the underlying stock(disregarding lapse restrictions as defined in§ 1.53-3(i))on the date the right is granted;and (3) The stock appreciation right does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the stock appreciation right. (C) Stock rights that may provide for the deferral of compensation. An option to purchase stock other than service recipient stock, or a stock appreciation right with respect to stock other than service recipient stock, generally will provide for the deferral of compensation within the meaning of this paragraph(b). If under the terms of an option to purchase service recipient stock (other than an incentive stock option described in section 422 or a stock option granted under an employee stock purchase plan described in section 423),the exercise price is or could become less than the fair market value of the stock(disregarding lapse restrictions as defined in§ 1.83 3(i))on the date of grant, the grant of the option generally will provide for the deferral of compensation within the meaning of this paragraph (b). If under the terms of a stock appreciation right with respect to service recipient stock,the compensation payable under the stock appreciation right is or could be any amount greater than,with respect to a predetermined number of shares,the excess of the fair market value of the stock(disregarding lapse restrictions as defined in§ 1.83 3(i))on the date the stock appreciation right is exercised over the fair market value of the stock(disregarding lapse restrictions as defined in§ 1.53-3(i))on the date of grant of the stock appreciation right,the grant of the stock appreciation right generally will provide for a deferral of compensation within the meaning of this paragraph(b). (D)Feature for the deferral of compensation.To the extent a stock right provides a right other than the right to receive cash or stock on the date of exercise and such additional right would otherwise allow compensation to be deferred beyond the date of exercise, the entire arrangement(including the underlying stock right)provides for the deferral of compensation. For purposes of this paragraph(b)(5)(i), neither the right to receive substantially nonvested stock (as defined in§ 1.53 3(b))upon the exercise of a stock right,nor the right to pay the exercise price with previously acquired shares,constitutes a feature for the deferral of compensation. (E) Rights to dividends. For purposes of this paragraph(b)(5)(i), the right, directly or indirectly contingent upon the exercise of a stock right,to receive an amount equal to all or part of the dividends or other distributions (other than stock dividends described in paragraph(b)(5)(v)(H)of this section) declared and paid on the number of shares underlying the stock right between the date of grant and the date of exercise of the stock right constitutes an offset to the exercise price of the stock option or an increase in the amount payable under the stock appreciation right(generally causing such stock right to be subject to section 409A). A plan providing a right to dividends or other distributions declared and paid on the number of shares underlying a stock right,the payment of which is not contingent upon,or otherwise payable on,the exercise of the stock right, may provide for a deferral of compensation,but the existence ll, ;'l'l,A,o 2024 "r ``.Jo t;la o ol I a o/r 11"I"',I l"I', //till'.';, 8 2891 1 A09A--1 IDe-Iiiirniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 of the right to receive such an amount will not be treated as a reduction to the exercise price of(or an increase to the compensation payable under)the stock right. Thus, a right to such dividends or distributions that is not contingent, directly or indirectly, upon the exercise of a stock right will not cause the related stock right to fail to satisfy the requirements of the exclusion from the definition of a deferral of compensation provided in paragraphs (b)(5)(i)(A) and(B)of this section. (ii) Statutory stock options.The grant of an incentive stock option as described in section 422,or the grant of an option under an employee stock purchase plan described in section 423 (including the grant of an option with an exercise price discounted in accordance with section 423(b)(0) and the accompanying regulations), does not constitute a deferral of compensation. However, the exclusion for statutory stock options under this paragraph (b)(5)(ii) does not apply to a modification,extension,or renewal of a statutory option that is treated as the grant of a new option that is not a statutory option.See§1.424 1(e).In such event,the option is treated for purposes of this paragraph(b)as if it had been a nonstatutory stock option from the date of the original grant.Accordingly,if such modification,extension,or renewal of the stock option would have been treated as the grant of a new option or as causing the option to have had a deferral feature from the date of grant under paragraph(b)(5)(v) of this section, the modification, extension, or renewal of the stock option is treated as the grant of a new option or as causing the option to have had a deferral feature from the date of grant for purposes of this paragraph(b)(5). (iii) Service recipient stock—(A) In general. Except as otherwise provided in paragraphs (b)(5)(iii)(B), (C), and(D)of this section, the term service recipient stock means a class of stock that, as of the date of grant, is common stock for purposes of section 305 and the regulations thereunder of a corporation that is an eligible issuer of service recipient stock (as defined in paragraph(b)(5)(iii)(E)of this section).Notwithstanding the foregoing,the term service recipient stock does not include a class of stock that has any preference as to distributions other than distributions of service recipient stock and distributions in liquidation of the issuer. The term service recipient stock also does not include any stock that is subject to a mandatory repurchase obligation(other than a right of first refusal),or a put or call right that is not a lapse restriction as defined in§ 1.53-3(i),if the stock price under such right or obligation is based on a measure other than the fair market value (disregarding lapse restrictions as defined in§ 1.53-3(i))of the equity interest in the corporation represented by the stock. (B) American depositary receipts. An American depositary receipt or American depositary share may constitute service recipient stock, to the extent that the stock traded on a foreign securities market to which the American depositary receipt or American depositary share relates qualifies as service recipient stock. (C)Mutual company units. Mutual company units may constitute service recipient stock.For this purpose,the term mutual company unit means a fixed percentage of the overall value of a non-stock mutual company or association.For purposes of determining the value of the mutual company unit,the unit may be valued in accordance with the rules set forth in paragraph(b)(5)(iv)(B)of this section governing valuation of service recipient stock the shares of which are not traded on an established securities market, applied as if the mutual company were a stock corporation with one class of common stock and the number of shares of such stock determined according to such fixed percentage. For example,an appreciation right based on the appreciation of 10 mutual company units,where each unit is defined as one percent of the overall value of the mutual company, would be valued as if the appreciation right were based upon 10 shares of a corporation,with 100 shares of common stock(and no other class of stock),the shares of which are not readily tradable on an established securities market. (D)Other entities. An interest in an entity other than a corporation or non-stock mutual company or association may constitute service recipient stock to the extent designated by the Commissioner in revenue procedures, notices, or other guidance published in the Internal Revenue Bulletin(see§ 001.001(d)(2)of this chapter). ll, ti;'l'lnAzV 2024 r s ``'Jo t;la o ol I a o/r l l"I"',I l"I', / oI� "s 9 2892 1„ 09A-1 IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A-1 (E)Eligible issuer of service recipient stock—(I)In general.The term eligible issuer of service recipient stock means only the corporation for which the service provider provides direct services on the date of grant of the stock right(if the entity receiving such services is a corporation),and any corporation in a chain of corporations or other entities in which each corporation or other entity has a controlling interest in another corporation or other entity in the chain, ending with the corporation or other entity that has a controlling interest in the corporation or other entity for which the service provider provides direct services on the date of grant of the stock right.For this purpose,the term controlling interest has the same meaning as provided in§ 1.414(c) 2(b)(2)(i),provided that the language"at least 50 percent"is used instead of"at least 80 percent"each place it appears in§ 1.414(c) 2(b)(2)(i).In addition,where the use of such stock with respect to the grant of a stock right to such service provider is based upon legitimate business criteria,the term controlling interest has the same meaning as provided in § 1.414(c) 2(b)(2)(i),provided that the language "at least 20 percent"is used instead of"at least 80 percent"each place it appears in§ 1.414(c) 2(b)(2)(i).For purposes of determining ownership of an interest in an organization, the rules of§§ 1.414(c) 3 and 1.414(c) 4 apply. The determination of whether a grant is based on legitimate business criteria is based on the facts and circumstances, focusing primarily on whether there is a sufficient nexus between the service provider and the issuer of the stock right so that the grant serves a legitimate non-tax business purpose other than simply providing compensation to the service provider that is excluded from the requirements of section 409A. For example, stock of a corporation that owns an interest in a joint venture involving an operating business,used with respect to stock rights granted to service providers of the joint venture who are former service providers of such corporation, generally will constitute use of service recipient stock based upon legitimate business criteria, and therefore could constitute service recipient stock with respect to such service providers if the corporation owns at least 20 percent of the joint venture and the other requirements of this paragraph(b)(5)(iii) are met. Similarly, the legitimate business criteria requirement generally would be met if the corporate venturer issued such a right to an employee of the joint venture who it reasonably expected would in the future become an employee of the corporate venturer.However,where a service provider has no real nexus with a corporate venturer,such as generally happens when the corporate venturer is a passive investor in the service recipient joint venture,a stock right issued to that employee on the investor corporation's stock generally would not be based upon legitimate business criteria. Similarly,where a corporation holds only a minority interest in an entity that in turn holds a minority interest in the entity for which the service provider performs services,such that the corporation holds only an insubstantial indirect interest in the entity receiving the services, legitimate business criteria generally would not exist for issuing a stock right on the corporation's stock to the service provider. (2)Investment vehicles.Notwithstanding the provisions of paragraph(b)(5)(iii)(E)(1)of this section,except as to a service provider providing services directly to such corporation,for purposes of this paragraph(b)(5), an eligible issuer of service recipient stock does not include any corporation whose primary purpose is to serve as an investment vehicle with respect to the corporation's minority ownership interests in entities other than the service recipient. (3)Corporate structures established or transactions undertaken for purposes of avoiding coverage under section 409A.Notwithstanding the provisions of paragraph(b)(5)(iii)(E)(1)of this section,an eligible issuer of service recipient stock does not include any corporation within a group of entities treated as a single service recipient if a purpose of the establishment of the structure of the ownership,or a purpose of a significant transaction between or among two or more entities comprising a single service recipient, is to provide deferred compensation not subject to the application of section 409A. If an entity becomes a member of a group of corporations or other entities treated as a single service recipient,and the primary source of income or value of such entity arises from the provision of management services to other members of the service recipient group,it is presumed that such structure was established for purposes of avoiding the application of section 409A if any stock rights are issued with respect to such entity. ll, ;'l'l,A,o 2024 ``.J,o t;la o ol l f a o/r 11-1"I'1r 1"1', AA)I .s f 0 2893 1 A09A--1 IDe-Iiiirniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 (4) Substitutions and assumptions by reason of a corporate transaction. If the requirements of paragraph(b)(5) (v)(D)of this section are met such that the substitution of a new stock right pursuant to a corporate transaction for an outstanding stock right, or the assumption of an outstanding stock right pursuant to a corporate transaction, would not be treated as the grant of a new stock right or a change in the form of payment for purposes of this section and §§ 1.409A 2 through 1.409A 6, the stock underlying the stock right that replaced the stock right that is substituted or assumed will be treated as service recipient stock for purposes of applying this paragraph (b)(5)to the replacement stock rights if such underlying stock otherwise satisfies the requirements of paragraph (b)(5)(iii)(A) of this section. For example, if by reason of a spinoff transaction (under which the stock of a subsidiary corporation is distributed to the stockholders of a distributing corporation),a stock option to purchase distributing corporation stock is replaced with a stock option to purchase distributing corporation stock and a stock option to purchase the spun off subsidiary corporation's stock(each otherwise satisfying the requirements of paragraph(b)(5)(iii)(A) of this section), and where such substitution is not treated as a modification of the original stock option pursuant to paragraph(b)(5)(v)(D)of this section,both the distributing corporation stock and the subsidiary corporation stock are treated as service recipient stock for purposes of applying this paragraph (b)(5)to the replacement stock options. (iv) Determination of the fair market value of service recipient stock—(A) Stock readily tradable on an established securities market. For purposes of paragraph(b)(5)(i)of this section,in the case of service recipient stock that is readily tradable on an established securities market, the fair market value of the stock may be determined based upon the last sale before or the first sale after the grant,the closing price on the trading day before or the trading day of the grant,the arithmetic mean of the high and low prices on the trading day before or the trading day of the grant,or any other reasonable method using actual transactions in such stock as reported by such market. The determination of fair market value also may be determined using an average selling price during a specified period that is within 30 days before or 30 days after the applicable valuation date,provided that the program under which the stock right is granted,including a program with a single participant,must irrevocably specify the commitment to grant the stock right with an exercise price set using such an average selling price before the beginning of the specified period.For this purpose,the term average selling price refers to the arithmetic mean of such selling prices on all trading days during the specified period,or the average of such prices over the specified period weighted based on the volume of trading of such stock on each trading day during such specified period. To satisfy this requirement, the service recipient must designate the recipient of the stock right, the number and class of shares of stock that are subject to the stock right,and the method for determining the exercise price including the period over which the averaging will occur,before the beginning of the specified averaging period. Notwithstanding the forgoing provisions of this paragraph(b)(5)(iv)(A),where applicable foreign law requires that a compensatory stock right be priced based upon a specific price averaging method and period,a stock right granted in accordance with such applicable foreign law will be treated as meeting the requirements of this paragraph(b)(5)(iv)(A),provided that the averaging period does not exceed 30 days. (B) Stock not readily tradable on an established securities market—(I)In general. For purposes of paragraph(b)(5) (i)of this section,in the case of service recipient stock that is not readily tradable on an established securities market, the fair market value of the stock as of a valuation date means a value determined by the reasonable application of a reasonable valuation method.The determination whether a valuation method is reasonable,or whether an application of a valuation method is reasonable,is made based on the facts and circumstances as of the valuation date.Factors to be considered under a reasonable valuation method include,as applicable,the value of tangible and intangible assets of the corporation,the present value of anticipated future cash-flows of the corporation,the market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses substantially similar to those engaged in by the corporation the stock of which is to be valued,the value of which can be readily determined through nondiscretionary, objective means (such as through trading prices on an established securities market or an amount ll, ;'l'l,A,o 2024 ``,J,o t;la o ol I a o/r 11"I"',I l"I', //till's I I 2894 1„409AA De-15iniCioins aural covered p1lairn ,,,26 ..11=„IIR„§1„409AA paid in an anu's length private transaction),recent anu's length transactions involving the sale or transfer of such stock or equity interests, and other relevant factors such as control premiums or discounts for lack of marketability and whether the valuation method is used for other purposes that have a material economic effect on the service recipient, its stockholders, or its creditors. The use of a valuation method is not reasonable if such valuation method does not take into consideration in applying its methodology all available information material to the value of the corporation. Similarly, the use of a value previously calculated under a valuation method is not reasonable as of a later date if such calculation fails to reflect information available after the date of the calculation that may materially affect the value of the corporation(for example, the resolution of material litigation or the issuance of a patent) or the value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used. The service recipient's consistent use of a valuation method to determine the value of its stock or assets for other purposes,including for purposes unrelated to compensation of service providers,is also a factor supporting the reasonableness of such valuation method. (2)Presumption of reasonableness.For purposes of this paragraph(b)(5)(iv)(B),the use of any of the following methods of valuation is presumed to result in a reasonable valuation,provided that the Commissioner may rebut such a presumption upon a showing that either the valuation method or the application of such method was grossly unreasonable: (i)A valuation of a class of stock determined by an independent appraisal that meets the requirements of section 40 1(a)(28)(C)and the regulations as of a date that is no more than 12 months before the relevant transaction to which the valuation is applied(for example,the date of grant of a stock option). (ii)A valuation based upon a formula that,if used as part of a nonlapse restriction(as defined in§ 1.83 3(h))with respect to the stock,would be considered to be the fair market value of the stock pursuant to§ 1.83 5,provided that such stock is valued in the same manner for purposes of any transfer of any shares of such class of stock (or any substantially similar class of stock)to the issuer or any person that owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the issuer(applying the stock attribution rules of § 1.424 1(d)), other than an anu's length transaction involving the sale of all or substantially all of the outstanding stock of the issuer, and such valuation method is used consistently for all such purposes, and provided further that this paragraph(b)(5)(iv)(B)(2)(ii) does not apply with respect to stock subject to a stock right payable in stock,where the stock acquired pursuant to the exercise of the stock right is transferable other than through the operation of a nonlapse restriction. (iii)A valuation,made reasonably and in good faith and evidenced by a written report that takes into account the relevant factors described in paragraph(b)(5)(iv)(B)(1)of this section,of illiquid stock of a start-up corporation. For this purpose,illiquid stock of a start-up corporation means service recipient stock of a corporation that has no material trade or business that it or any predecessor to it has conducted for a period of 10 years or more and has no class of equity securities that are traded on an established securities market(as defined in paragraph(k)of this section),where such stock is not subject to any put,call,or other right or obligation of the service recipient or other person to purchase such stock(other than a right of first refusal upon an offer to purchase by a third party that is unrelated to the service recipient or service provider and other than a right or obligation that constitutes a lapse restriction as defined in§ 1.83 3(i)),and provided that this paragraph(b)(5)(iv)(B)(2)(iii)does not apply to the valuation of any stock if the service recipient or service provider may reasonably anticipate,as of the time the valuation is applied,that the service recipient will undergo a change in control event as described in§ 1.409A 3(i)(5)(v)or§ 1.409A-3(i)(5)(vii)within the 90 days following the action to which the valuation is applied,or make a public offering of securities within the 180 days following the action to which the valuation is applied. ll, ti;'l'lnAzV 2024 `'JIo t;la o ol I a o/r l l"I"',I l"I', AA)I .s 12 2895 1 A09A--1 IDe-15irniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 For purposes of this paragraph(b)(5)(iv)(B)(2)(iii), a valuation will not be treated as made reasonably and in good faith unless the valuation is performed by a person or persons that the corporation reasonably determines is qualified to perform such a valuation based on the person's or persons" significant knowledge, experience, education,or training.Generally,a person will be qualified to perform such avaluation if a reasonable individual, upon being apprised of such knowledge,experience,education,and training,would reasonably rely on the advice of such person with respect to valuation in deciding whether to accept an offer to purchase or sell the stock being valued.For this purpose, significant experience generally means at least five years of relevant experience in business valuation or appraisal,financial accounting,investment banking,private equity, secured lending,or other comparable experience in the line of business or industry in which the service recipient operates. (3)Use of alternative methods.For purposes of this paragraph(b)(5),a different valuation method may be used for each separate action for which a valuation is relevant,provided that a single valuation method is used for each separate action and,once used,may not retroactively be altered.For example,one valuation method may be used to establish the exercise price of a stock option,and a different valuation method may be used to determine the value at the date of the repurchase of stock pursuant to a put or call right.However, once an exercise price or amount to be paid has been established,the exercise price or amount to be paid may not be changed through the retroactive use of another valuation method.In addition,notwithstanding the foregoing,where after the date of grant,but before the date of exercise or transfer, of the stock right,the service recipient stock to which the stock right relates becomes readily tradable on an established securities market,the service recipient must use the valuation method set forth in paragraph(b)(5)(iv)(A)of this section for purposes of determining the payment at the date of exercise or the purchase of the stock,as applicable. (v)Modifications,extensions,substitutions,and assumptions of stock rights—(A)Treatment of modified and extended stock rights. A modification of the terms of a stock right within the meaning of paragraph(b)(5)(v)(B) of this section is considered to be the grant of a new stock right. The new stock right may or may not constitute a deferral of compensation under paragraph(b)(5)(i) of this section, determined at the date of grant of the new stock right. If there is an extension of a stock right(within the meaning of paragraph(b)(5)(v)(C)of this section),the stock right is treated as having had an additional deferral feature from the original date of grant of the stock right,and therefore will be treated as a plan providing for the deferral of compensation from the original grant date for purposes of this paragraph(b). (B)Modification in general.Except as otherwise provided in paragraph(b)(5)(v)of this section,the term modification means any change in the terms of the stock right (or change in the terms of the plan pursuant to which the stock right was granted or in the terms of any other agreement governing the stock right)that may provide the holder of the stock right with a direct or indirect reduction in the exercise price of the stock right regardless of whether the holder in fact benefits from the change in terms.A change in the terms of the stock right shortening the period during which the stock right is exercisable is not a modification.It is not a modification to add a feature providing the ability to tender previously acquired stock for the stock purchasable under the stock right, or to withhold or have withheld shares of stock to facilitate the payment of the exercise price or the employment taxes or required withholding taxes resulting from the exercise of the stock right.In addition,it is not a modification for the grantor to exercise discretion specifically reserved under a stock right with respect to the transferability of the stock right. (C) Extensions—(I) In general. An extension of a stock right refers to the provision to the holder of an additional period of time within which to exercise the stock right beyond the time originally prescribed under the terms of the stock right,the conversion or exchange of a stock right for a legally binding right to compensation in a future taxable year,or the addition of any feature for the deferral of compensation not permitted in paragraph(b)(5)(i)(A)(3)of this section(in the case of a stock option) or not permitted in paragraph(b)(5)(i)(B)(3) of this section(in the case of a ll, ;'l'l,A,o 2024 ``,j,o t;la o ol I a o/r 11"I"',I l"I', //till's 13 2896 1„ 09A--1 IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 stock appreciation right)to the terms of the stock right,other than at a time when the exercise price of the stock right equals or exceeds the fair market value of the service recipient stock that could be purchased(in the case of an option) or the fair market value of the service recipient stock used to determine the payment to the service provider(in the case of a stock appreciation right), and includes a renewal of such right that has such effect. It is not an extension if the exercise period of a stock right is extended to a date no later than the earlier of the latest date upon which the stock right could have expired by its original terms under any circumstances or the loth anniversary of the original date of grant of the stock right. If the exercise period of a stock right is extended at a time when the exercise price of the stock right equals or exceeds the fair market value of the service recipient stock that could be purchased (in the case of an option) or the fair market value of the service recipient stock used to determine the payment to the service provider(in the case of a stock appreciation right),it is not an extension of the original stock right. Instead, in such a case,the original stock right is treated as modified rather than extended and a new stock right is treated as having been granted for purposes of this section. In addition, it is not an extension of a stock right if the expiration of the stock right is tolled while the holder cannot exercise the stock right because such an exercise would violate an applicable Federal,state,local,or foreign law,or would jeopardize the ability of the service recipient to continue as a going concern,provided that the period during which the stock right may be exercised is not extended more than 30 days after the exercise of the stock right first would no longer violate an applicable Federal, state,local,and foreign laws or would first no longer jeopardize the ability of the service recipient to continue as a going concern. For this purpose, a provision of foreign law shall be considered applicable only to foreign earned income (as defined under section 911(b)(1)without regard to section 911(b)(I)(B)(Ilv) and without regard to the requirement that the income be attributable to services performed during the period described in section 911(d)(1)(A)or(13))from sources within the foreign country that promulgated such law. (2)Certain extensions before April 10,2007. An extension of a stock right before April 10,2007 solely in order to provide the holder of such stock right an additional period of time beyond the time originally prescribed under the terms of such stock right within which to exercise the stock right is disregarded for purposes of applying the rules contained in paragraph(b)(5)(v)(C)(1) of this section. For purposes of applying the rules contained in paragraph(b)(5)(v)(C)(1)of this section on and after April 10, 2007, such a stock right is treated as having specified at the date of grant the time within which to exercise such stock right that was prescribed under the terms of such stock right in effect on April 10,2007.Nothing in this paragraph(b)(5)(v)(C)(2)affects any other action treated as the extension of a stock right,including the addition of a deferral feature. (3)Examples. The following examples illustrate the provisions of this paragraph(b)(5)(v)(C). In the examples, each employee is an individual employed by the specified employer,and each employee and each employer has a calendar year taxable year. Example 1.On July 1,2009,Employer Z grants Employee A a nonstatutory stock option that does not provide for the deferral of compensation in accordance with paragraph(b)(5)(i)(A)of this section. The terms of the nonstatutory stock option provide that the exercise period of the stock option expires on the earlier of July 1, 2019, or 3 months after Employee A's separation from service. On July 1,2011,Employee A separates from service. On the same day,Employee A and Employer Z change the exercise period of the option so that it expires on July 1, 2013. Because the exercise period of the stock right is not extended beyond July 1,2019,the change is not an extension for purposes of this paragraph(b)(5)(v)(C). Example 2.The facts are the same as in Example 1 except that Employee A separates from service on July 1,2018,and on the same day,Employee A and Employer Z change the exercise period of the option so that it expires on July 1, 2020. As of July 1,2018,the fair market value of the underlying stock exceeds the exercise price.Because the exercise period of the stock right is extended beyond July 1,2019,the change is an extension for purposes of this paragraph(b)(5)(v)(C). ll, ;'l'l,A,o 2024 ``.J,o t;la o ol lf a o/r 11-1"I'1r 1"1', //till's 14 2897 1„ 09A--1 IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11=„IIR„§1„ 09A--1 Example 3.The facts are the same as in Example 2 except that as of July 1,2018,the fair market value of the underlying stock is less than the exercise price of the option. Because the exercise period of the stock right is extended at a time when the fair market value of the underlying stock is less than the exercise price,the change is not an extension for purposes of this paragraph (b)(5)(v)(C) and the change is treated as a modification of the option, resulting in the extension of the exercise period being treated as the grant of a new option on July 1,2018. Example 4.On July 1,2009,Employer Y grants to Employee B a stock appreciation right with respect to 200 shares of Employer Y common stock that does not provide for the deferral of compensation in accordance withparagraph(b)(5)(i)(B)of this section. Upon exercise of the stock appreciation right,Employee B is entitled to receive the excess of the fair market value of a share of Employer Y common stock on the date of exercise over$100 (the fair market value of a share of Employer Y common stock on July 1, 2009), multiplied by the number of shares with respect to which Employee B is exercising the right. The exercise period of the right expires on the earlier of July 1, 2019, or 3 months after Employee B separates from service. Employee B cannot exercise the stock appreciation right with respect to more than 100 shares unless Employee B continues to be employed by Employer Y through June 30, 2014. On July 1, 2011,when the fair market value of a share of Employer Y common stock is $200, Employee B and Employer Y amend the stock appreciation right to provide that the right will be exercisable only during calendar year 2018,except that before January 1, 2017,Employee B may elect to designate calendar year 2023 or any subsequent calendar year before 2033 as the year in which the right will be exercisable.The amendment constitutes anextension of the stock appreciation right under paragraph(b)(5)(v)(C)(1)of this section.Under paragraph(b)(5)(v)(A)of this section,the stock appreciation right is treated as having had an additional deferral feature from the original date of grant(July 1,2009)of the right, and therefore is treated as a plan providing for the deferral of compensation from that date. During the period from July 1,2009,through June 30,2011,the provisions of the stock appreciation right relating to the time and form of payment did not satisfy the requirements of§ 1.409A-3(a). Therefore,the stock appreciation right provides for a deferral of compensation that does not comply with section 409A. (D)Substitutions and assumptions of stock rights by reason of a corporate transaction.If the requirements of§ 1.424 1 (without regard to the requirement described in§ 1.424 1(a)(2)that an eligible corporation be the employer of the optionee)would be met if the stock right were a statutory option,the substitution of a new stock right pursuant to a corporate transaction(as defined in§1.424 1(a)(3))for an outstanding stock right or the assumption of an outstanding stock right pursuant to a corporate transaction will not be treated as the grant of a new stock right or a change in the form of payment for purposes of this section and§§ 1.409A 2 through 1.409A 6.For purposes of the preceding sentence, the requirement of§ 1.424 1(a)(5)(iii) will be deemed to be satisfied if the ratio of the exercise price to the fair market value of the shares subject to the stock right immediately after the substitution or assumption is not greater than the ratio of the exercise price to the fair market value of the shares subject to the stock right immediately before the substitution or assumption. In the case of a transaction described in section 355 in which the stock of the distributing corporation and the stock distributed in the transaction are both readily tradable on an established securities market immediately after the transaction,for purposes of this paragraph(b)(5)(v), the requirements of§ 1.424 1(a)(5)related to the fair market value of the stock may be satisfied by— (1)Using the last sale before or the first sale after the specified date as of which such valuation is being made,the closing price on the last trading day before or the trading day of a specified date,the arithmetic mean of the high and low prices on the last trading day before or the trading day of such specified date, or any other reasonable method using actual transactions in such stock as reported by such market on a specified date,for the stock of the distributing corporation and the stock distributed in the transaction,provided the specified date is designated before such specified date,and such specified date is not more than 60 days after the transaction; ll, ;'l'l,A,o 2024 "r ``.J,o t;la o oI g"'l"I a o/r 11"I"',I l"I', AA)Il "s 15 2898 1„ 09A--1 De-Iiiiiiiboins aural covered p1lairn ,,,26 „F.11R„§1„ 09A--1 (2)Using the arithmetic mean of such market prices on trading days during a specified period designated before the beginning of such specified period,where such specified period is not longer than 30 days and ends no later than 60 days after the transaction;or (3)Using an average of such prices during such prespecified period weighted based on the volume of trading of such stock on each trading day during such prespecified period. (E)Acceleration of date when exercisable.Although with respect to a stock right not immediately exercisable in full, a change in the terms of the right solely to accelerate or delay,within the original term of the stock right,the time at which the stock right(or any portion of such stock right)may be exercised is not a modification for purposes of this section,with respect to a stock right subject to section 409A, such an acceleration may constitute an impermissible acceleration of a payment date under§ 1.409A 30)or a subsequent deferral under§ 1.409A 2(b). (F) Discretionary added benefits. If a change to a stock right provides, either by its terms or in substance, that the holder may receive an additional benefit under the stock right at the future discretion of the grantor,and the addition of such benefit would constitute a modification or extension,then the addition of such discretion is a modification or extension at the time that the stock right is changed to provide such discretion. (G) Change in underlying stock increasing value. A change in the terms of the stock subject to a stock right that increases the value of the stock is a modification of such stock right, except to the extent that a new stock right is substituted for such stock right by reason of the change in the terms of the stock in accordance with paragraph(b) (5)(v)(D)of this section. (H)Change in the number of shares purchasable. If a stock right is amended solely to increase the number of shares subject to the stock right, the increase is not considered a modification of the stock right but is treated as the grant of a new additional stock right to which the additional shares are subject. Notwithstanding the previous sentence, if the exercise price and number of shares subject to a stock right are proportionally adjusted to reflect a stock split (including a reverse stock split)or stock dividend,and the only effect of the stock split or stock dividend is to increase (or decrease)on a pro rata basis the number of shares owned by each shareholder of the class of stock subject to the stock right,then there is no modification of the stock right if it is proportionally adjusted to reflect the stock split or stock dividend and the aggregate exercise price of the stock right is not less than the aggregate exercise price before the stock split or stock dividend. (1)Rescission of changes.A change to the terms of a stock right(or change in the terms of the plan pursuant to which the stock right was granted or in the terms of any other agreement governing the right)is not considered a modification or extension of the stock right to the extent the change in the terms of the stock right is rescinded by the earlier of the date the stock right is exercised or the last day of the service provider's taxable year during which such change occurred. Thus, for example, if the terms of a stock right granted to an individual employee with a calendar year taxable year are changed on March 1 in a manner that would result in an extension of the stock right,and the change is rescinded on November 1 of the same year,and the stock right is not exercised before the change is rescinded,the stock right is not considered extended under this paragraph(b)(5)(v). ll, ;'l'l,A,o 2024 ``.J,o t;la o ol lf a o/r 11-1"I'1r 1"1', //till's 16 2899 1„ 09A--1 IDe-Iiiirniiboirn aural coveired p1lairn ,,,26 „11:J1R..§1„ 09A--1 Q) Successive modifications and extensions. The rules of this paragraph (b)(5)(v) apply as well to successive modifications and extensions. (K)Modifications and extensions in effect on October 23,2004.For purposes of the application of section 409A and these regulations to a stock right, if a legally binding right to a modification or extension of such stock right existed on October 23, 2004, such modification or extension is disregarded, and the stock right is treated as if granted with the terms and conditions in effect on October 23,2004. (vi) Meaning and use of certain terms—(A) Option. The term option means the right or privilege of an individual to purchase stock from a corporation by virtue of an offer of the corporation continuing for a stated period of time,whether or not irrevocable,to sell such stock at a price determined under paragraph(b)(5)(vi)(D)of this section, such individual being under no obligation to purchase. While no particular form of words is necessary,the option must express an offer to sell at the option price,the maximum number of shares purchasable under the option,and the period of time during which the offer remains open. The term option includes a warrant that meets the requirements of this paragraph(b)(5)(vi)(A). An option may be granted as part of or in conjunction with an employee stock purchase plan or subscription contract. An option must be in writing(in paper or electronic form)provided that such writing is adequate to establish an option right or privilege that is enforceable under applicable law. (B) Date of grant of option. (1) The language the date of grant of the option, and similar phrases, refer to the date when the granting corporation completes the corporate action necessary to create the legally binding right constituting the option. A corporate action creating the legally binding right constituting the option is not considered complete until the date on which the maximum number of shares that can be purchased under the option and the minimum exercise price are fixed or determinable,and the class of underlying stock and the identity of the service provider is designated.Ordinarily,if the corporate action provides for an immediate offer of stock for sale to a service provider, or provides for a particular date on which such offer is to be made,the date of the granting of the option is the date of such corporate action if the offer is to be made immediately, or the date provided as the date of the offer, as the case may be. However, an unreasonable delay in the giving of notice of such offer to the service provider will be taken into account as indicating that the corporation provided that the offer was to be made at the subsequent date on which such notice is given. (2) If the corporation imposes a condition on the granting of an option (as distinguished from a condition governing the exercise of the option),such condition generally will be given effect in accordance with the intent of the corporation.However,if the grant of an option is subject to approval by stockholders,the date of grant of the option will be determined as if the option had not been subject to such approval. A condition that does not require corporate action, such as the approval of, or registration with, some regulatory or government agency, for example,a stock exchange or the Securities and Exchange Commission,is ordinarily considered a condition upon the exercise of the option unless the corporate action clearly indicates that the option is not to be granted until such condition has been satisfied. (3) In general, a condition imposed upon the exercise of an option will not operate to make ineffective the granting of the option. For example, on June 1, 2008, Corporation A grants to X, an employee, an option to purchase 5,000 shares of the corporation's common stock, exercisable by X on or after June 1, 2009,provided X is employed by the corporation on June 1,2009,and provided that A's profits during the fiscal year preceding the year of exercise exceed $200,000. Such an option is granted to X on June 1, 2008, and will be treated as outstanding as of such date. ll, ;'l'l,A,o 2024 ``.J,o t;la o ol lf a o/, I I"1"',1 1-1', //till's 17 2900 1„ 09A--1 IDe-fliirniCioirn and covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 (C)Stock.The term stock means capital stock of any class,including voting or nonvoting common or preferred stock. Except as otherwise provided,the term stock includes both treasury stock and stock of original issue. Special classes of stock authorized to be issued to and held by employees are within the scope of the term stock for this purpose, provided such stock otherwise possesses the rights and characteristics of capital stock. (D)Exercise price.The term exercise price means the consideration in cash or property that,pursuant to the terms of the option,is the price at which the stock subject to the option is purchased. The term exercise price does not include any amounts paid as interest under a deferred payment plan or treated as interest. (E)Exercise.The term exercise,when used in reference to an option,means the act of acceptance by the holder of the option of the offer to sell contained in the option.In general,the time of exercise is the time when there is a sale or a contract to sell between the corporation and the individual.A promise to pay the exercise price does not constitute an exercise of the option unless the holder of the option is subject to personal liability on such promise. An agreement or undertaking by the service provider to make payments under a stock purchase plan does not constitute the exercise of an option to the extent the payments made remain subject to withdrawal by or refund to the service provider. (F)Transfer. The term transfer,when used in reference to the transfer to an individual of a share of stock pursuant to the exercise of an option,means the transfer of ownership of such share,or the transfer of substantially all the rights of ownership. Such transfer must,within a reasonable time,be evidenced on the books of the corporation.A transfer may occur even if a share of stock is subject to a substantial risk of forfeiture or is not otherwise transferable immediately after the date of exercise. A transfer does not fail to occur merely because, under the terms of the arrangement,the individual may not dispose of the share for a specified period of time,or the share is subject to a right of first refusal or a right to acquire the share at the share's fair market value at the time of the sale. (G) Readily tradable. For purposes of this section and §§ 1.409A 2 through 1.409A 6, stock is treated as readily tradable if it is regularly quoted by brokers or dealers making a market in such stock. (H) Application to stock appreciation rights. For purposes of this section and §§ 1.409A 2 through 1.409A 6, the definitions provided in paragraphs(b)(5)(vi)(A)through(G)of this section may be applied by analogy to the issuance of,exercise of,or payment upon the exercise of,a stock appreciation right. (6) Restricted property, section 402(b) trusts, and section 403(c) annuities—(i) In general. If a service provider receives property from,or pursuant to,a plan maintained by a service recipient,there is no deferral of compensation merely because the value of the property is not includible in income by reason of the property being substantially nonvested(as defined in§ 1.53 3(b)),or is includible in income solely due to a valid election under section 83(b). For purposes of this paragraph(b)(6)(i),a transfer of property includes the transfer of abeneficial interest in a trust or annuity plan,or a transfer to or from a trust or under an annuity plan,to the extent such a transfer is subject to section 83, section 402(b)or section 403(c).In addition,for purposes of this paragraph(b),a right to compensation income that will be required to be included in income under section 402(b)(4)(A)is not a deferral of compensation. (ii) Promises to transfer property. A plan under which a service provider obtains a legally binding right to receive property in a future taxable year where the property will be substantially vested (as defined in § 1.53 3(b)) at the time ll, ;'l'l,A,o 2024 ``.J,o t;la o ol lf a o/r 11-1"I'1r 1"1', //till's 18 2901 1„409AA Defiiiniifiioins aural covered p1lairn ,,,26 „11:JIR„§1„409AA of transfer of the property may provide for the deferral of compensation and, accordingly, may constitute a nonqualified deferred compensation plan.A legally binding right to receive property in a future taxable year where the property will be substantially nonvested(as defined in§ 1.83 3(b))at the time of transfer of the property will not provide for the deferral of compensation and,accordingly,will not constitute a nonqualified deferred compensation plan unless offered in conjunction with another legally binding right that constitutes a deferral of compensation. (7)Arrangements between partnerships and partners. [Reserved] (8) Certain foreign plans—(i) Plans with respect to compensation covered by treaty or other international agreement.A plan in which a service provider participates does not provide for a deferral of compensation for purposes of this paragraph(b)to the extent that the compensation under the plan would have been excluded from gross income for Federal income tax purposes under the provisions of any bilateral income tax convention or other bilateral or multilateral agreement to which the United States is a party if the compensation had been paid to the service provider at the time that the legally binding right to the compensation first arose or, if later,the time that the legally binding right was no longer subject to a substantial risk of forfeiture. (ii)Plans with respect to certain other compensation.A plan in which a service provider participates does not provide for a deferral of compensation for purposes of this paragraph(b)to the extent that compensation under the plan would not have been includible in gross income for Federal tax purposes if it had been paid to the service provider at the time that the legally binding right to the compensation first arose or, if later,the time that the legally binding right was no longer subject to a substantial risk of forfeiture,due to one of the following: (A)The service provider was a nonresident alien at such time and the compensation would not have been includible in gross income under section 872. (B)The service provider was a qualified individual(as defined in section 911(d)(1))at such time,the compensation would have been foreign earned income within the meaning of section 911(b)(1)(without regard to section 911(b)(1) (B)(iv)) if paid at such time, and the amount of such compensation was equal to or less than the excess (if any) of the maximum exclusion amount under section 911(b)(2)(D)for such taxable year over the amount of foreign earned income actually excluded from gross income by such qualified individual for such taxable year under section 911(a) M. (C)The compensation would have been excludible from gross income under section 893. (D)The compensation would have been excludible from gross income under section 931 or section 933. (iii) Tag equalization agreements. A tax equalization agreement does not provide for a deferral of compensation if payments made under such tax equalization agreement are made no later than the end of the second taxable year of the service provider beginning after the taxable year of the service provider in which the service provider's U.S.Federal income tax return is required to be filed (including any extensions) for the year to which the compensation subject to the tax equalization payment relates, or, if later, the second taxable year of the service provider beginning after the latest such taxable year in which the service provider's foreign tax return or payment is required to be filed or made for the year to which the compensation subject to the tax equalization payment relates. Where such payments arise due to an audit,litigation or ll, ;'l'l,A,o 2024 ``.JIo t;la o ol I a o/r 11"I"',I l"I', //till'.';, 19 2902 1„409AA IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„409AA similar proceeding,the right to the payments will not be treated as resulting in a deferral of compensation if the payments are scheduled and made in accordance with the provisions of§ 1.409A 3(i)(1)(v) (timing of tax gross-up payments).For purposes of this paragraph(b)(8)(iii), the term tax equalization agreement refers to an agreement, method, program, or other arrangement that provides payments intended to compensate the service provider for some or all of the excess of the taxes actually imposed by a foreign jurisdiction on the compensation paid by the service recipient to the service provider over the taxes that would be imposed if the compensation were subject solely to United States Federal, state, and local income tax,or some or all of the excess of the United States Federal, state,and local income tax actually imposed on the compensation paid by the service to the service provider over the taxes that would be imposed if the compensation were subject solely to taxes in the foreign jurisdiction,provided that the payment made under such agreement,method,program, or other arrangement may not exceed such excess and the amount necessary to compensate for the additional taxes on the amount paid under the agreement,method,program,or other arrangement. (iv)Certain limited deferrals of a nonresident alien.With respect to a nonresident alien,a foreign plan does not provide for a deferral of compensation if the amounts deferred under the foreign plan based upon services performed by the nonresident alien in the United States (including amounts deferred based upon service credits or compensation received due to services performed in the United States)do not exceed the applicable dollar amount under section 402(g)(1)(B)for the taxable year.If the amounts deferred under the foreign plan based upon the services performed by the nonresident alien in the United States exceed the applicable dollar amount,an amount of such deferrals equal to such amount is treated as not deferred under a nonqualified deferred compensation plan.For purposes of this paragraph(b)(8)(iv),the term foreign plan means a plan that,together with all substantially similar plans,is maintained by a service recipient for a substantial number of participants,substantially all of whom are nonresident aliens or resident aliens classified as resident aliens solely under section 7701(b)(1)(A)(ii)(and not section 7701(b)(1)(A)(i)). (v) Additional foreign plans. A plan in which a service provider participates does not provide for a deferral of compensation for purposes of this paragraph(b) to the extent designated by the Commissioner in revenue procedures, notices,or other guidance published in the Internal Revenue Bulletin(see §601.601(d)(2)of this chapter). (vi) Earnings. Earnings on compensation excluded from the definition of deferral of compensation pursuant to this paragraph(b)(8)are also not treated as a deferral of compensation. (9) Separation pay plans—(i) In general. A plan that otherwise provides for a deferral of compensation under this paragraph(b)does not fail to provide a deferral of compensation merely because the right to payment of the compensation is conditioned upon a separation from service. However,paragraphs (b)(9)(ii), (iii), (iv), and (v) of this section provide rules concerning the extent to which certain separation pay plans do not provide for the deferral of compensation. The exceptions contained in paragraphs (b)(9)(ii), (iii), (iv), and (v) of this section may be used in combination, such that compensation under a plan that would be excepted under one of those paragraphs may be treated as excepted under another of those paragraphs,so that other compensation under a plan may be treated as excepted under the first of such paragraphs. Notwithstanding any other provision of this paragraph(b)(9),any payment orbenefit,or entitlement to apayment orbenefit, that acts as a substitute for, or replacement of, amounts deferred by the service recipient under a separate nonqualified deferred compensation plan constitutes a payment or a deferral of compensation under the separate nonqualified deferred compensation plan,and does not constitute a payment or deferral of compensation under a separation pay plan.If a service provider receives a payment at separation from service and also has a legally binding right to an amount of deferred compensation that would be forfeited upon the separation from service, whether the payment acts as an acceleration of vesting and substitute payment for the amount of deferred compensation forfeited,or whether the deferred compensation is treated as forfeited and the amount paid is treated as a separate payment of current compensation,is determined based on the facts and circumstances,provided that,where the separation from service is voluntary,it is presumed that the payment ll, ;'l'l,A,o 2024 "r `'Jo t;la o ol I a o/r 11"I"',I l"I', / oIk''s 20 2903 1 A09A--1 IDe-liiirniiboirn aural covered p1lairn ..,26 J1:JIR..§1 A09A--1 results from an acceleration of vesting followed by a payment of the deferred compensation that is subject to section 409A. Accordingly, any change in the payment schedule to accelerate or defer the payments would be subject to the rules of section 409A.The presumption that a right to a payment is not a new right,but is instead a right substituted for a pre-existing forfeited right,may be rebutted by demonstrating that the service provider would have obtained the right to the payment regardless of the forfeiture of the nonvested right.A factor indicating that the service provider would have obtained a right to a payment regardless of the forfeiture of the nonvested right is that the amount to which the service provider obtains a right is materially less than an amount equal to the present value of the forfeited amount multiplied by a fraction, the numerator of which is the period of service the service provider actually completed,and the denominator of which is the full period of service the service provider would have been required to complete to receive the full amount of the payment. For example, where a service provider is entitled to a future payment only if the service provider completes three years of service and at the time of termination the service provider has completed one year of service, the presumption could be rebutted if the payment to the service provider is materially less than the present value of one-third of the nonvested amount. Another such factor is that the payment to the service provider is of a type customarily made to service providers who separate from service with the service recipient and do not forfeit nonvested rights to deferred compensation (for example,a payment of accrued but unused leave or a payment for a release of actual or potential claims). (ii)Collectively bargained separation pay plans.A separation pay plan does not provide for a deferral of compensation to the extent the plan is a collectively bargained separation pay plan that provides for separation pay only upon an involuntary separation from service or pursuant to a window program. Only the portion of the separation pay plan attributable to employees covered by a bona fide collective bargaining agreement is considered to be provided under a collectively bargained separation pay plan.A collectively bargained separation pay plan is a separation pay plan that meets the following conditions: (A)The separation pay plan is contained within an agreement that the Secretary of Labor determines to be a collective bargaining agreement. (B)The separation pay provided by the collective bargaining agreement was the subject of anu's length negotiations between employee representatives and one or more employers,and the agreement between employee representatives and one or more employers satisfies section 7701(a)(46). (C) The circumstances surrounding the agreement evidence good faith bargaining between adverse parties over the separation pay to be provided under the agreement. (iii)Separation pay due to involuntary separation from service or participation in a window program.A separation pay plan that is not described in paragraph(b)(9)(ii) of this section and that provides for separation pay only upon an involuntary separation from service (as defined in paragraph(n) of this section) or pursuant to a window program does not provide for a deferral of compensation to the extent that the separation pay,or portion of the separation pay,provided under the plan meets the following requirements: (A)The separation pay(other than amounts described in paragraphs(b)(9)(iv)and(v)of this section)does not exceed two times the lesser of— (1) The sum of the service provider's annualized compensation based upon the annual rate of pay for services provided to the service recipient for the taxable year of the service provider preceding the taxable year of the ll, ;'l'l,A,o 2024 ``,JIot;la ool I a o/rll"I"',I l"I', //links 21 2904 1 A09A--1 IDe-Iiiirniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 service provider in which the service provider has a separation from service with such service recipient(adjusted for any increase during that year that was expected to continue indefinitely if the service provider had not separated from service);or (2)The maximum amount that may be taken into account under a qualified plan pursuant to section 401(a)(17) for the year in which the service provider has a separation from service. (B) The plan provides that the separation pay described in paragraph(b)(9)(iii)(A) of this section must be paid no later than the last day of the second taxable year of the service provider following the taxable year of the service provider in which occurs the separation from service. (iv) Foreign separation pay plans. A separation pay plan (including a plan providing payments upon a voluntary separation from service) does not provide for deferred compensation to the extent the plan provides for amounts of separation pay required to be provided under the applicable law of a foreign jurisdiction.For this purpose,a provision of foreign law shall be considered applicable only to foreign earned income(as defined under section 911(b)(1)without regard to section 911(b)(1)(13)(iv) and without regard to the requirement that the income be attributable to services performed during the period described in section 911(d)(1)(A)or(B))from sources within the foreign country that promulgated such law. (v) Reimbursements and certain other separation payments—(A) In general. To the extent a separation pay plan (including a plan providing payments upon a voluntary separation from service)entitles a service provider to payment by the service recipient of reimbursements that are not otherwise excludible from gross income for expenses that the service provider could otherwise deduct under section 102 or section 107 as business expenses incurred in connection with the performance of services(ignoring any applicable limitation based on adjusted gross income),or of reasonable outplacement expenses and reasonable moving expenses actually incurred by the service provider and directly related to the termination of services for the service recipient, such plan does not provide for a deferral of compensation to the extent such rights apply during a limited period of time (regardless of whether such rights extend beyond the limited period of time). For purposes of this paragraph(b)(9)(v)(A), the reimbursement of reasonable moving expenses includes the reimbursement of all or part of any loss the service provider actually incurs due to the sale of a primary residence in connection with a separation from service. (B) Medical benefits. To the extent a separation pay plan (including a plan providing payments due to a voluntary separation from service)entitles a service provider to reimbursement by the service recipient of payments of medical expenses incurred and paid by the service provider but not reimbursed by a person other than the service recipient and allowable as a deduction under section 213 (disregarding the requirement of section 213(a) that the deduction is available only to the extent that such expenses exceed 7.5 percent of adjusted gross income), such plan does not provide for a deferral of compensation to the extent such rights apply during the period of time during which the service provider would be entitled(or would,but for such plan,be entitled)to continuation coverage under a group health plan of the service recipient under section 4980B (COBRA)if the service provider elected such coverage and paid the applicable premiums. (C) In-kind benefits and direct service recipient payments. A service provider's entitlement to in-kind benefits from the service recipient, or a payment by the service recipient directly to the person providing the goods or services to the service provider,is treated as not providing for a deferral of compensation for purposes of this paragraph(b), if ll, ;'l'l,A,o 2024 ``,J,o cI,;i o ol I a o/r 11"I"',I l"I', /Vo I s 22 2905 1 A09A--1 IDe-Iiiirniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 a right to reimbursement by the service recipient for a payment for such benefits, goods, or services by the service provider would not be treated as providing for a deferral of compensation under this paragraph(b)(9)(v). (D)Limited payments.If not otherwise excluded,a taxpayer may treat a right or rights under a separation pay plan to a payment or payments as not providing for a deferral of compensation to the extent such payments in the aggregate do not exceed the applicable dollar amount under section 402(g)(1)(B)for the year of the separation from service. (E)Limited period of time.For purposes of paragraphs(b)(9)(v)(A)and(C)of this section,a limited period of time in which expenses may be incurred, or in which in-kind benefits may be provided by the service recipient or a third parry that the service recipient will pay, does not include periods beyond the last day of the second taxable year of the service provider following the taxable year of the service provider in which the separation from service occurred, provided that the period during which the reimbursements for such expenses must be paid may not extend beyond the third taxable year of the service provider following the taxable year of the service provider in which the separation from service occurred. (vi)Window programs—definition.The term window program refers to a program established by a service recipient in connection with an impending separation from service to provide separation pay,where such program is made available by the service recipient for a limited period of time(no longer than 12 months)to service providers who separate from service during that period or to service providers who separate from service during that period under specified circumstances. A program will not be considered a window program if a service recipient establishes a pattern of repeatedly providing for similar separation pay in similar situations for substantially consecutive, limited periods of time. Whether the recurrence of these programs constitutes a pattern is determined based on the facts and circumstances. Although no one factor is determinative,relevant factors include whether the benefits are on account of a specific business event or condition,the degree to which the separation pay relates to the event or condition, and whether the event or condition is temporary or discrete or is a permanent aspect of the employer's business. (10) Certain indemnification and liability insurance plans. A plan in which a service provider participates does not provide for a deferral of compensation for purposes of this paragraph (b) to the extent that the plan provides (to the extent permissible under applicable law),for the indemnification of,or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by a service provider with respect to a bona fide claim against the service provider or service recipient,including amounts paid or payable by the service provider upon the settlement of a bona fide claim against the service provider or service recipient,where such claim is based on actions or failures to act by the service provider in his or her capacity as a service provider of the service recipient. (11)Legal settlements.An agreement to which a service provider is a parry does not provide for a deferral of compensation for purposes of this paragraph(b) to the extent that the agreement provides for amounts paid as settlements or awards resolving bona fide legal claims based on wrongful termination, employment discrimination, the Fair Labor Standards Act, or worker's compensation statutes, including claims under applicable Federal, state, local, or foreign laws, or for reimbursements or payments of reasonable attorneys fees or other reasonable expenses incurred by the service provider related to such bona fide legal claims, regardless of whether such settlements, awards, or reimbursement or payment of expenses pursuant to such claims are treated as compensation or wages for Federal tax purposes. Whether the execution of a waiver of any or all of such types of claims indicates that the amounts are paid as an award or settlement of an actual bona fide claim for damages under applicable law is determined based on the facts and circumstances. This paragraph(b) (11) does not apply to any deferred amounts that did not arise as a result of an actual bona fide claim for damages under applicable law, such as amounts that would have been deferred or paid regardless of the existence of such claim,even if such amounts are paid or modified as part of a settlement or award resolving an actual bona fide claim. For this purpose, ll, ti;'l'lnAzV 2024 `'j,o t;la o ol I a o/r 11"I"',I l"I', //ol '.s 23 2906 1„ 09A--1 IDe-liiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 a provision of foreign law shall be considered applicable only to foreign earned income (as defined under section 911(b) (1) without regard to section 911(b)(1)(B)(iv) and without regard to the requirement that the income be attributable to services performed during the period described in section 911(d)(1)(A) or(B))from sources within the foreign country that promulgated such law. (12) Certain educational benefits. A plan in which a service provider participates does not provide for a deferral of compensation to the extent the plan provides for taxable educational benefits.For purposes of this paragraph(b)(12),the term educational benefits refers solely to benefits provided to a service provider,consisting solely of educational assistance for the education of the service provider, as defined in section 127(c) and the accompanying regulations, and does not refer to any benefits provided for the education of any other person,including any spouse,child,or other family member of the service provider. (c) Plan—(1) In general. The term plan includes any agreement, method, program, or other arrangement, including an agreement,method,program,or other arrangement that applies to one person or individual.A plan may be adopted unilaterally by the service recipient or may be negotiated or agreed to by the service recipient and one or more service providers or service provider representatives. An agreement,method,program,or other arrangement may constitute a plan regardless of whether it is an employee benefit plan under section 3(3)of ERISA,as amended(29 U.S.C. 1002(3)). The requirements of section 409A are applied as if a separate plan or plans is maintained for each service provider.For purposes of determining the terms of a plan, general provisions of the plan that purport to nullify noncompliant plan terms,or to supply any specific plan terms required by this section, § 1.409A 2 or§ 1.409A 3,are disregarded. (2)Plan aggregation rules—(i)In general.Except as otherwise provided,the following rules apply with respect to the application of this section and §§ 1.409A 2 through 1.409A 6 to deferrals of compensation with respect to a service provider: (A)All deferrals of compensation at the election of that service provider under all plans of the service recipient that are account balance plans,except to the extent that the plan is described in paragraph(c)(2)(i)(D),(E),(F),(G),or(H) of this section, are treated as deferred under a single plan.For purposes of this paragraph,the term account balance plan means— (1) An agreement, method, program, or other arrangement that is an account balance plan as defined in § 31.3121(v)(2) 1(c)(1)(ii)(A)of this chapter,including mandatorily bifurcating the agreement,method,program, or other arrangement in accordance with the rules provided in§31.3121(v)-1(c)(1)(iii)(B)t of this chapter;or (2)An agreement,method,program,or other arrangement that would be described in paragraph(c)(2)(i)(A)(1) of this section if the service provider were an employee. (B) All deferrals of compensation other than at the election of that service provider, including deferrals reflecting matching by the service recipient with respect to amounts a service provider elects to defer, under all plans of the service recipient that are account balance plans, except to the extent the plan is described in paragraph(c)(2)(i)(D), (E), (F), (G), or(H)of this section,are treated as deferred under a single plan.For purposes of this paragraph(c)(2) (i)(B),the term"account balance plan"has the same meaning as provided in paragraph(c)(2)(i)(A)of this section. ll, ti;'l'lnAzV 2024 `'j,o t;la o ol lf a o/r 11-1"I'1r 1"1', / oIk,,s 24 2907 1A09A--1 De-15iniCioins and covered p1lairn ..,26 ..11=..IIR..§1A09A--1 (C) All deferrals of compensation with respect to that service provider under all plans of the service recipient that are nonaccount balance plans, except to the extent such plan is described in paragraph(c)(2)(i)(D), (E), (F), (G), or (H)of this section, are treated as deferred under a single plan. For purposes of this paragraph(c)(2)(i)(C),the term nonaccount balance plan means— (1) An agreement, method, program, or other arrangement that is a nonaccount balance plan as defined in § 31.3121(v)(2) 1(c)(2)(i)of this chapter,including mandatorily bifurcating the agreement,method,program,or other arrangement in accordance with the rules provided in§31.3121(v)-1(c)(1)(iii)(B)I of this chapter;or (2)An agreement,method,program,or other arrangement that would be described in paragraph(c)(2)(i)(C)(1) of this section if the service provider were an employee. (D)All deferrals of compensation with respect to that service provider under all separation pay plans (as defined in paragraph(m)of this section)of the service recipient to the extent an amount deferred under the plans is not described in paragraph(c)(2)(i)(E)of this section and is payable solely upon an involuntary separation from service within the meaning of paragraph(n)of this section or as a result of participation in a window program,are treated as deferred under a single plan. (E)All deferrals of compensation with respect to that service provider under all plans of the service recipient to the extent such amounts deferred consist of rights to in-kind benefits or reimbursements of expenses,such as membership fees,or expenses related to aircraft or vehicle usage,to the extent that the right to the in-kind benefit or reimbursement, separately or in the aggregate,does not constitute a substantial portion of either the overall compensation earned by the service provider for performing services for the service recipient or the overall compensation received due to a separation from service,are treated as deferred under a single plan. (F)All deferrals of compensation with respect to that service provider under all plans of the service recipient to the extent that the taxation of such compensation is governed by § 1.61 22 or § 1.7872 15 (split-dollar life insurance arrangements), or the taxation of such compensation would be governed by § 1.61 22 or § 1.7872 15 but for the operation of§ 1.61 220) (effective date provisions),are treated as deferred under a single plan. (G) All deferrals of compensation with respect to that service provider under all agreements, methods, programs, or other arrangements of the service recipient to the extent the deferrals under the agreements, methods,programs, or other arrangements are deferrals of amounts that would be treated as modified foreign earned income (meaning foreign earned income as defined under section 911(b)(1) without regard to section 911(b)(1)(B)(Ilv) and without regard to the requirement that the income be attributable to services performed during the period described in section 911(d)(1)(A)or(13))if paid to the service provider at the time the amount is first deferred,and provided further that substantially all the participants in such agreements,methods,programs,or other arrangements and any substantially similar agreements, methods, programs, or other arrangements are nonresident aliens and that the service provider does not participate in a substantially identical agreement,method,program,or other arrangement that does not meet the requirements of this paragraph(c)(2)(i)(G)(a domestic arrangement),are treated as deferred under a single plan. ll, ;TI,A,o 2024 ( ``,Jo t;la o ol I a o/r l l"I"',I l"I', //till'"s 2 5 2908 1 A09A--1 IDe-IiiirniCioirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 (H)All deferrals of compensation with respect to that service provider under all plans of the service recipient to the extent such plans are stock rights (as defined in paragraph(1)of this section) subject to section 409A, are treated as deferred under a single plan. (1) All deferrals of compensation with respect to that service provider under all plans of the service recipient to the extent such plans are not described in paragraph(c)(2)(i)(A), (B), (C), (D), (E), (F), (G), or(H) of this section are treated as deferred under a single plan. (ii) Dual status. Agreements, methods, programs, and other arrangements in which a service provider participates are not aggregated with other agreements, methods, programs, and other arrangements to the extent the service provider participates in one set of agreements, methods, programs, and other arrangements due to status as an employee of the service recipient(employee arrangements)and another set of agreements,methods,programs,and other arrangements due to status as an independent contractor of the service recipient(independent contractor arrangements).For example,where a service provider deferred amounts under an independent contractor arrangement while providing services as an independent contractor, and then becomes eligible for and defers amounts under a separate employee arrangement after being hired as an employee, the two arrangements will not be aggregated for purposes of this paragraph(c)(2). Where an employee also is a member of the board of directors of the service recipient(or a similar position with respect to a non-corporate service recipient), the arrangements under which the employee participates as a director(director arrangements) are not aggregated with employee arrangements,provided that the director arrangements are substantially similar to arrangements provided to service providers providing services only as directors(or similar positions with respect to non-corporate service recipients). For example, an employee director who participates in an employee arrangement and a director arrangement generally may treat the two arrangements as separate plans,provided that the director arrangement is substantially similar to arrangements providing benefits to non-employee directors.To the extent aplan in which an employee director participates is not substantially similar to arrangements in which non-employee directors participate,such plan is treated as an employee plan for purposes of this paragraph(c)(2). Director plans and independent contractor plans are aggregated for purposes of this paragraph(c)(2). (3)Establishment of plan—(i)In general.A plan does not satisfy the requirements of section 409A and this section and §§ 1.409A 2 through 1.409A 3 and §§ 1.409A 5 through 1.409A 6, unless the plan is established and maintained by a service recipient in accordance with the requirements of this section, §§ 1.409A 2 through 1.409A 3 and §§ 1.409A 5 through 1.409A-6. For purposes of this paragraph(c)(3), a plan is established on the latest of the date on which it is adopted,the date on which it is effective,and the date on which the material terms of the plan are set forth in writing.The material terms of the plan may be set forth in writing in one or more documents.For purposes of this paragraph(c)(3)(i), a plan will be deemed to be set forth in writing if it is set forth in any other form that is approved by the Commissioner. The material terms of the plan include the amount(or the method or formula for determining the amount) of deferred compensation to be provided under the plan and the time and form of payment.Notwithstanding the foregoing,a plan will be deemed to be established as of the date the participant obtains a legally binding right to a deferral of compensation, provided that the plan is otherwise established under the rules of this paragraph(c)(3)(i)by the end of the taxable year of the service provider in which the legally binding right arises, or with respect to an amount not payable in the year immediately following the taxable year of the service provider in which the legally binding right arises (the subsequent year),the 15th day of the third month of the subsequent year. (ii)Initial deferral election provisions.If a plan provides a service provider or a service recipient with an initial deferral election,the plan satisfies the requirements of this paragraph(c)(3)if the plan sets forth in writing, on or before the date the applicable election is required to be irrevocable to satisfy the requirements of§ 1.409A 2(a), the conditions under which such election may be made. ll, ;'l'l,A,o 2024 "r ``,Jo t;la o ol I a o/r 11"I"',I l"I', //till'"s 26 2909 1 A09A--1 IDe-Iiiirniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 (iii) Subsequent deferral election provisions. If a plan permits a subsequent deferral election described in § 1.409A 2(b),the plan satisfies the requirements of this paragraph(c)(3)if the plan sets forth in writing, on or before the date the election is required to be irrevocable to meet the requirements of§ 1.409A 2(b),the conditions under which such election may be made. (iv)Payment accelerations.Except as explicitly provided in§ 1.409A 3,a plan is not required to set forth in writing the conditions under which a payment may be accelerated if such acceleration is permitted under§ 1.409A 30)(4). (v) Sig-month delay for specified employees. A plan must provide that distributions to a specified employee may not be made before the date that is six months after the date of separation from service or, if earlier, the date of death(the six-month delay rule). The six-month delay rule,required for payments due to the separation from service of a specified employee, must be written in the plan. A plan does not fail to be established and maintained merely because it does not contain the six-month delay rule when the service provider who has a right to compensation deferred under such plan is not a specified employee.However,such provision must be set forth in writing on or before the date such service provider first becomes a specified employee. In general, this means the provision must be set forth in writing on or before the specified employee effective date (as defined in paragraph(i)(3) of this section)for the first list of specified employees that includes such service provider. (vi) Plan amendments. In the case of an amendment that increases the amount deferred under a nonqualified deferred compensation plan,the plan is not considered established with respect to the additional amount deferred until the plan,as amended,is established in accordance with paragraph(c)(3)(i)of this section. (vii)Transition rule for written plan requirement.For purposes of this paragraph(c)(3),a legally enforceable unwritten plan that was adopted and effective before December 31,2007,is treated as established under this section as of the later of the date on which it was adopted or became effective,provided that the material terms of the plan are set forth in writing on or before December 31,2007. (viii)Plan aggregation rules.The plan aggregation rules of paragraph(c)(2)(i)of this section do not apply to the written plan requirements of this paragraph(c)(3).Accordingly,deferrals of compensation under an agreement,method,program, or other arrangement that fails to meet the requirements of section 409A solely due to a failure to meet the written plan requirements of this paragraph(c)(3)are not aggregated with deferrals of compensation under other agreements,methods, programs,or other arrangements that meet such requirements. (d) Substantial risk of forfeiture—(l) In general. Compensation is subject to a substantial risk of forfeiture if entitlement to the amount is conditioned on the performance of substantial future services by any person or the occurrence of a condition related to a purpose of the compensation, and the possibility of forfeiture is substantial. For purposes of this paragraph(d), a condition related to a purpose of the compensation must relate to the service provider's performance for the service recipient or the service recipient's business activities or organizational goals(for example,the attainment of a prescribed level of earnings or equity value or completion of an initial public offering).For purposes of this paragraph(d),if a service provider's entitlement to the amount is conditioned on the occurrence of the service provider's involuntary separation from service without cause, the right is subject to a substantial risk of forfeiture if the possibility of forfeiture is substantial. An amount is not subject to a substantial risk of forfeiture merely because the right to the amount is conditioned, directly or indirectly, upon the refraining from the performance of services.Except as provided with respect to certain transaction-based compensation under§ 1.409A ll, .,,;'l'l,A,o 2024 `'J,o t;la o ol l a o/r l l"I"',I l"I', //ol '.s 2 2910 1„ 09A--1 IDe-IiiirniCioirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 3(i)(5)(iv),the addition of any risk of forfeiture after the legally binding right to the compensation arises,or any extension of a period during which compensation is subject to a risk of forfeiture, is disregarded for purposes of determining whether such compensation is subject to a substantial risk of forfeiture. An amount will not be considered subject to a substantial risk of forfeiture beyond the date or time at which the recipient otherwise could have elected to receive the amount of compensation, unless the present value of the amount subject to a substantial risk of forfeiture(disregarding,in determining the present value, the risk of forfeiture)is materially greater than the present value of the amount the recipient otherwise could have elected to receive absent such risk of forfeiture. For this purpose, compensation that the service provider would receive for continuing to perform services regardless of whether the service provider elected to receive the amount that is subject to a substantial risk of forfeiture is not taken into account in determining whether the present value of the right to the amount subject to a substantial risk of forfeiture is materially greater than the amount the recipient otherwise could have elected to receive absent such risk of forfeiture.For example,a salary deferral generally may not be made subject to a substantial risk of forfeiture.But, for example,where a bonus plan provides an election between a cash payment or restricted stock units with a present value that is materially greater(disregarding the risk of forfeiture)than the present value of such cash payment and that will be forfeited absent continued services for a period of years, the right to the restricted stock units generally will be treated as subject to a substantial risk of forfeiture. (2) Stock rights. A stock right is not subject to a substantial risk of forfeiture at the earlier of the first date the holder may exercise the stock right and receive cash or property that is substantially vested (as defined in § 1.83 3(b)) or the first date that the stock right is not subject to a forfeiture condition that would constitute a substantial risk of forfeiture. Accordingly, a stock option that the service provider may exercise immediately and receive substantially vested stock is not subject to a substantial risk of forfeiture,even if the stock option automatically terminates upon the service provider's separation from service. (3)Enforcement of forfeiture condition—(i)In general.In determining whether the possibility of forfeiture is substantial in the case of rights to compensation granted by a service recipient to a service provider that owns a significant amount of the total combined voting power or value of all classes of equity of the service recipient(where the service provider's ownership is determined with application of the attribution rules under section 318 if the service recipient is a corporation, or if the service recipient is an entity that is not a corporation,with application by analogy of the attribution rules under section 318),all relevant facts and circumstances will be taken into account in determining whether the probability of the service recipient enforcing such condition is substantial,including— (A) The service provider's relationship to other equity holders and the extent of their control,potential control and possible loss of control of the service recipient; (B) The position of the service provider in the service recipient and the extent to which the service provider is subordinate to other service providers; (C)The service provider's relationship to the officers and directors of the service recipient(or similar positions with respect to a noncorporate service recipient); (D)The person or persons who must approve the service provider's discharge;and (E)Past actions of the service recipient in enforcing the restrictions. ll, ;'l'l,A,o 2024 1o"I,IS011 lJ, I s ``.J,o t;la o ol lf a J Ciro/,, l,i l"I'fr l"f't //till',,s 28 2911 1„409AA IDe-IiiirniCioirn and covered p1lairn ,,,26 „11:J1R..§1„409AA (ii)Examples.The following examples illustrate the rules of paragraph(d)(3)(i)of this section: Example 1.A service provider would be considered as having deferred compensation subject to a substantial risk of forfeiture, but for the fact that the service provider owns 20 percent of the single class of stock in the transferor corporation.If the remaining 80 percent of the class of stock is owned by an unrelated individual (or members of such an individual's family) so that the possibility of the corporation enforcing a restriction on such rights is substantial, then such rights are subject to a substantial risk of forfeiture. Example 2.A service provider would be considered as having deferred compensation subject to a substantial risk of forfeiture, but for the fact that the service provider, who is president of the corporation, also owns 4 percent of the voting power of all the stock of a corporation. If the remaining stock is so diversely held by the public that the president, in effect, controls the corporation,then the possibility of the corporation enforcing a restriction on the right to deferred compensation of the president is not substantial,and such rights are not subject to a substantial risk of forfeiture. (e) Performance-based compensation—(l) In general. The term performance-based compensation means compensation the amount of which, or the entitlement to which, is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months.Organizational or individual performance criteria are considered preestablished if established in writing by not later than 90 days after the commencement of the period of service to which the criteria relates,provided that the outcome is substantially uncertain at the time the criteria are established.Performance-based compensation may include payments based on performance criteria that are not approved by a compensation committee of the board of directors(or similar entity in the case of a non-corporate service recipient)or by the stockholders or members of the service recipient.Performance-based compensation does not include any amount or portion of any amount that will be paid either regardless of performance,or based upon a level of performance that is substantially certain to be met at the time the criteria is established.In addition,except as provided in paragraph(e)(3)of this section,compensation is not performance-based compensation merely because the amount of such compensation is determined by reference to the value of the service recipient or the stock of the service recipient. Where a portion of an amount of compensation would qualify as performance-based compensation if the portion were the sole amount available under the plan,that portion of the award will not fail to qualify as performance-based compensation if that portion is designated separately or otherwise separately identifiable under the terms of the plan, and the amount of each portion is determined independently of the other. Compensation may be performance-based compensation where the amount will be paid regardless of satisfaction of the performance criteria due to the service provider's death,disability,or a change in control event(as defined in§ 1.409A 3(i)(5)(i)),provided that a payment made under such circumstances without regard to the satisfaction of the performance criteria will not constitute performance- based compensation.For purposes of this paragraph(e)(1),a disability refers to any medically determinable physical or mental impairment resulting in the service provider's inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months. (2) Payments based upon subjective performance criteria. The term performance-based compensation includes payments based upon subjective performance criteria,provided that— (i) The subjective performance criteria are bona fide and relate to the performance of the participant service provider, a group of service providers that includes the participant service provider,or a business unit for which the participant service provider provides services(which may include the entire organization);and (ii)The determination that any subjective performance criteria have been met is not made by the participant service provider or a family member of the participant service provider (as defined in section 26 7(c)(4) applied as if the family of an ll, ;'l'l,A,o 2024 ``.J,o cI,;i o ol I a o/r 11"I"',I l"I', AA)I .s 29 2912 1„409AA IDe-Iiiirniiboirn airnd covered p1lairn ,,,26 „11:J1R..§1„409AA individual includes the spouse of any member of the family), or a person under the effective control of the participant service provider or such a family member, and no amount of the compensation of the person making such determination is effectively controlled in whole or in part by the service provider or such a family member. (3)Equity-based compensation.Compensation is performance-based compensation if it is based solely on an increase in the value of the service recipient,or a share of stock in the service recipient, after the date of a grant or award. However, compensation payable for a service period that is equal to the value of a predetermined number of shares of stock, and is variable only to the extent that the value of such shares appreciates or depreciates, generally will not be performance- based compensation. Notwithstanding the foregoing, the attainment of a prescribed value for the service recipient(or a portion thereof), or a share of stock in the service recipient, may be used as a preestablished organizational criterion for purposes of providing performance-based compensation,provided that the other requirements of paragraph(e)(1)of this section are satisfied.In addition,an award of equity based compensation may constitute performance-based compensation if entitlement to the compensation is subject to a condition that would cause the award to otherwise qualify as performance- based compensation, such as a performance-based vesting condition. A provision that allows a service provider to defer compensation that would be realized upon the exercise of a stock right generally constitutes an additional deferral feature for purposes of the definition of a deferral of compensation under paragraph(b)(5)of this section. (f)Service provider—(1)In general.The term service provider includes an individual,corporation,subchapter S corporation, partnership,personal service corporation(as defined in section 269A(b)(1)),noncorporate entity that would be a personal service corporation if it were a corporation, qualified personal service corporation(as defined in section 448(d)(2)),and noncorporate entity that would be a qualified personal service corporation if it were a corporation, for any taxable year in which such individual,corporation, subchapter S corporation,partnership,or other entity accounts for gross income from the performance of services under the cash receipts and disbursements method of accounting. The term service provider generally includes a person who has separated from service(a former service provider). (2)Independent contractors—(i)In general.Except as otherwise provided in paragraph(f)(2)(iv)of this section,section 409A does not apply to an amount deferred under a plan between a service provider and service recipient with respect to a particular trade or business in which the service provider participates,including earnings credited to such deferred amount, if during the service provider's taxable year in which the service provider obtains a legally binding right to the payment of the amount deferred each of the following applies: (A)The service provider is actively engaged in the trade or business of providing services,other than as an employee or as a member of the board of directors of a corporation(or similar position with respect to an entity that is not a corporation). (B)The service provider provides significant services to two or more service recipients to which the service provider is not related and that are not related to one another(as defined in paragraph(f)(2)(ii)of this section). (C)The service provider is not related to the service recipient,applying the definition of related person contained in paragraph(f)(2)(ii) of this section subject to the modification that the language "20 percent" is not used instead of "50 percent"each place"50 percenf'appears in sections 26 7(b)and 707(b)(1). (ii) Related person. For purposes of this paragraph (f)(2), a person is related to another person if the persons bear a relationship to each other that is specified in section 26 7(b) or 707(b)(1), subject to the modifications that the language ll, ti;'l'lnAzV 2024 `'J,o t;la o ol I a o/r l l"I"',I l"I', AA)I .s 30 2913 1„ 09A--1 IDe-IiiirniCioirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 "20 percent"is used instead of"50 percent"each place it appears in sections 267(b)and 707(b)(1),and section 267(c)(4) is applied as if the family of an individual includes the spouse of any member of the family; or the persons are engaged in trades or businesses under common control(within the meaning of section 52(a)and(b)). In addition, an individual is related to an entity if the individual is an officer of an entity that is a corporation,or holds a position substantially similar to an officer of a corporation with an entity that is not a corporation. (iii) Significant services. Whether a service provider is providing significant services depends on the facts and circumstances of each case.However,for purposes of paragraph(f)(2)(i)of this section,a service provider who provides services to two or more service recipients to which the service provider is not related and that are not related to one another is deemed to be providing significant services to two or more of such service recipients for a given taxable year, if the revenues generated from the services provided to any service recipient or group of related service recipients during such taxable year do not exceed 70 percent of the total revenue generated by the service provider from the trade or business of providing such services.In addition,in the case of a service provider who has been providing services in a trade or business for a period of not less than three consecutive years,for purposes of paragraph(f)(2)(i)of this section,a service provider who provides services to two or more service recipients to which the service provider is not related and that are not related to one another is deemed to be providing significant services to two or more of such service recipients for a given taxable year if in each of the prior three taxable years the revenues generated from the services provided to any service recipient or group of related service recipients during such prior taxable years did not exceed 70 percent of the total revenue generated by the service provider from the trade or business of providing such services and, at the time an amount is deferred,the service provider does not know or have reason to anticipate that the revenues generated from the services provided to any service recipient or group of related service recipients during the current year will exceed 70 percent of the total revenue generated by the service provider from the trade or business of providing such services. (iv) Management services. This paragraph(f)(2) does not apply to a service provider to the extent the service provider provides management services to a service recipient. For purposes of this paragraph (f)(2)(iv), the term management services means services that involve the actual or de facto direction or control of the financial or operational aspects of a trade or business of the service recipient, or investment management or advisory services provided to a service recipient whose primary trade or business includes the investment of financial assets(including investments in real estate), such as a hedge fund or a real estate investment trust. (v)Services provided to related persons. Section 409A does not apply to an amount deferred under a plan that is a bona fide agreement,method,program,or other arrangement between a service provider and a related service recipient arising in the ordinary course of a particular trade or business in which the service provider is engaged to the extent that— (A)The service provider provides services to the service recipient as an independent contractor; (B)During the service provider's taxable year in which the amount is deferred,the service provider qualifies for the safe harbor provided in paragraph(f)(2)(iii)of this section with respect to such trade or business;and (C) Such agreement, method, program, or other arrangement and the practices thereunder (including billing and collection practices), are substantially similar to the agreements, methods, programs, or other arrangements and practices applicable to one or more unrelated service recipients to whom the service provider provides substantial services and that produce a majority of the total revenue that the service provider earns from the trade or business of providing such services during the taxable year. ll, ti;'l'lnAzV 2024 `'J,o t;la o ol lf a o/r 11-1"I'1r 1"1', AA)I .s 31 2914 1 A09A--1 IDe-IiiirniCioirn aural coveired p1lairn ..,26 J1:J1R..§1 A09A--1 (g) Service recipient. Except as otherwise specifically provided in these regulations, the term service recipient means the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under section 414(b) (employees of controlled group of corporations), and all persons with whom such person would be considered a single employer under section 414(c) (employees of partnerships,proprietorships,etc.,under common control).For example,if the service provider is an employee, the service recipient generally is the employer(including all persons treated as a single employer under section 414(b)or(c)). Notwithstanding the foregoing,section 409A applies to a plan that provides for the deferral of compensation,even if the payment of the compensation is not made by the person for whom services are performed. (h) Separation from service—(1)Employees—(i)In general.An employee separates from service with the employer if the employee dies,retires,or otherwise has atermination of employment with the employer.However,for purposes of this paragraph (h)(1),the employment relationship is treated as continuing intact while the individual is on military leave, sick leave,or other bona fide leave of absence if the period of such leave does not exceed six months,or if longer, so long as the individual retains a right to reemployment with the service recipient under an applicable statute or by contract. For purposes of this paragraph (h)(1), a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the employee will return to perform services for the employer. If the period of leave exceeds six months and the individual does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period.Notwithstanding the foregoing,where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months,where such impairment causes the employee to be unable to perform the duties of his or her position of employment or any substantially similar position of employment,a 29—month period of absence may be substituted for such six-month period. (ii)Termination of employment.Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the employer and employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date(whether as an employee or as an independent contractor)would permanently decrease to no more than 20 percent of the average level of bona fide services performed(whether as an employee or an independent contractor) over the immediately preceding 36—month period(or the full period of services to the employer if the employee has been providing services to the employer less than 36 months). Facts and circumstances to be considered in making this determination include,but are not limited to, whether the employee continues to be treated as an employee for other purposes (such as continuation of salary and participation in employee benefit programs),whether similarly situated service providers have been treated consistently, and whether the employee is permitted, and realistically available,to perform services for other service recipients in the same line of business. An employee is presumed to have separated from service where the level of bona fide services performed decreases to a level equal to 20 percent or less of the average level of services performed by the employee during the immediately preceding 36—month period. An employee will be presumed not to have separated from service where the level of bona fide services performed continues at a level that is 50 percent or more of the average level of service performed by the employee during the immediately preceding 36—month period.No presumption applies to a decrease in the level of bona fide services performed to a level that is more than 20 percent and less than 50 percent of the average level of bona fide services performed during the immediately preceding 36—month period. The presumption is rebuttable by demonstrating that the employer and the employee reasonably anticipated that as of a certain date the level of bona fide services would be reduced permanently to a level less than or equal to 20 percent of the average level of bona fide services provided during the immediately preceding 36—month period or full period of services provided to the employer if the employee has been providing services to the service recipient for a period of less than 36 months(or that the level of bona fide services would not be so reduced).For example,an employee may demonstrate that the employer and employee reasonably anticipated that the employee would cease providing services,but that,after the original cessation of services, business circumstances such as termination of the employee's replacement caused the employee to return to employment. ll, ;'l'l,A,o 2024 ``,j,o cI,;i o oI f a o/r 11"I"',I l"I', / oI '.s 2 2915 1 A09A--1 IDe-liiirniiboirn aural covered p1lairn ..,26 J1:J1R..§1 A09A--1 Although the employee's return to employment may cause the employee to be presumed to have continued in employment because the employee is providing services at a rate equal to the rate at which the employee was providing services before the termination of employment,the facts and circumstances in this case would demonstrate that at the time the employee originally ceased to provide services, the employee and the service recipient reasonably anticipated that the employee would not provide services in the future. Notwithstanding the foregoing provisions of this paragraph(h)(1)(ii), a plan may treat another level of reasonably anticipated permanent reduction in the level of bona fide services as a separation from service,provided that the level of reduction required must be designated in writing as a specific percentage,and the reasonably anticipated reduced level of bona fide services must be greater than 20 percent but less that 50 percent of the average level of bona fide services provided in the immediately preceding 36 months.The plan must specify the definition of separation from service on or before the date on which a separation from service is designated as a time of payment of the applicable amount deferred,and once designated,any change to the definition of separation from service with respect to such amount deferred will be subject to the rules regarding subsequent deferrals and the acceleration of payments.For purposes of this paragraph(h)(1)(ii), for periods during which an employee is on a paid bona fide leave of absence (as defined in paragraph(h)(1)(i)of this section)and has not otherwise terminated employment pursuant to paragraph(h)(1) (i)of this section,the employee is treated as providing bona fide services at a level equal to the level of services that the employee would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which an employee is on an unpaid bona fide leave of absence (as defined in paragraph(h)(1)(i) of this section)and has not otherwise terminated employment pursuant to paragraph(h)(1)(i)of this section,are disregarded for purposes of this paragraph(h)(1)(ii) (including for purposes of determining the applicable 36—month(or shorter)period). (2)Independent contractors—(i)In general.An independent contractor is considered to have a separation from service with the service recipient upon the expiration of the contract (or in the case of more than one contract, all contracts) under which services are performed for the service recipient if the expiration constitutes a good-faith and complete termination of the contractual relationship. An expiration does not constitute a good faith and complete termination of the contractual relationship if the service recipient anticipates a renewal of a contractual relationship or the independent contractor becoming an employee. For this purpose, a service recipient is considered to anticipate the renewal of the contractual relationship with an independent contractor if it intends to contract again for the services provided under the expired contract,and neither the service recipient nor the independent contractor has eliminated the independent contractor as a possible provider of services under any such new contract. Further, a service recipient is considered to intend to contract again for the services provided under an expired contract if the service recipient's doing so is conditioned only upon incurring a need for the services,the availability of funds,or both. (ii) Special rule. Notwithstanding paragraph (h)(2)(i) of this section, a plan is considered to satisfy the requirement described in§ 1.409A 3(a)(1)with respect to an amount payable upon a separation from service if,with respect to amounts payable to a service provider who is an independent contractor,the plan provides that— (A)No amount will be paid to the service provider before a date at least 12 months after the day on which the contract expires under which the service provider performs services for the service recipient(or,in the case of more than one contract,all such contracts expire);and (B)No amount payable to the service provider on that date will be paid to the service provider if,after the expiration of the contract(or contracts)and before that date,the service provider performs services for the service recipient as an independent contractor or an employee. (3)Definition of service recipient and employer.Forpurposes of this paragraph(h),the term service recipient or employer means the service recipient as defined in paragraph(g)of this section,provided that in applying section 1563(a)(1),(2),and ll, ;'l'l,A,o 2024 s ``'J,o t;la o ol I a o/r 11"I"',I l"I', //links 33 2916 1„409AA IDe-IiiirniCioirn aural covered p1lairn ,,,26 „11.11R..§1„409AA (3)for purposes of determining a controlled group of corporations under section 414(b),the language"at least 50 percent" is used instead of"at least 80 percent"each place it appears in section 1563(a)(1),(2),and(3),and in applying§ 1.414(c) 2 for purposes of determining trades or businesses(whether or not incorporated)that are under common control for purposes of section 414(c),"at least 50 percent"is used instead of"at least 80 percent"each place it appears in§ 1.414(c) 2.A plan may provide with respect to a deferral of compensation under the plan that in applying sections 1563(a)(1), (2), and(3) for purposes of determining a controlled group of corporations under section 414(b), another defined percentage greater than 50 percent,but not greater than 80 percent,is used instead of"at least 80 percent"at each place it appears in sections 1563(a)(1), (2), and (3), and in applying § 1.414(c) 2 for purposes of determining trades or businesses (whether or not incorporated)that are under common control for purposes of section 414(c), another defined percentage greater than 50 percent,but not greater than 80 percent, is used instead of"at least 80 percent" at each place it appears in § 1.414(c) 2. In addition, where the use of such definition of service recipient for purposes of determining a separation from service is based upon legitimate business criteria, the plan may provide that for purposes of a deferral of compensation under the plan that in applying sections 1563(a)(1), (2),and(3)for purposes of determining a controlled group of corporations under section 414(b), the language "at least 20 percent" or another defined percentage not less than 20 percent but not greater than 50 percent is used instead of"at least 80 percent" at each place it appears in sections 1563(a)(1), (2), and (3), and in applying§ 1.414(c) 2 for purposes of determining trades or businesses (whether or not incorporated)that are under common control for purposes of section 414(c),the language"at least 20 percent"or another defined percentage not less than 20 percent but not greater than 50 percent is used instead of"at least 80 percent" at each place it appears in § 1.414(c) 2. Where a definition of service recipient or employer other than the definition provided in the first sentence of this paragraph(h)(3) (the 50 percent standard)is used,the plan must designate in writing the alternate definition no later than the last date at which the time and form of payment of the applicable amount deferred must be elected in accordance with§ 1.409A 2(a), and any change in the definition for such amounts deferred will constitute a change in the time and form of payment subject to the rules governing subsequent deferral elections under§ 1.409A 2(b) and the acceleration of payments under§ 1.409A 30). (4)Asset purchase transactions. Where as part of a sale or other disposition of assets by one service recipient(seller) to an unrelated service recipient(buyer), a service provider of the seller would otherwise experience a separation from service with the seller, the seller and the buyer may retain the discretion to specify, and may specify, whether a service provider providing services to the seller immediately before the asset purchase transaction and providing services to the buyer after and in connection with the asset purchase transaction has experienced a separation from service for purposes of this paragraph(h), provided that the asset purchase transaction results from bona fide, anu's length negotiations, all service providers providing services to the seller immediately before the asset purchase transaction and providing services to the buyer after and in connection with the asset purchase transaction are treated consistently (regardless of position at the seller)for purposes of applying the provisions of any nonqualified deferred compensation plan, and such treatment is specified in writing no later than the closing date of the asset purchase transaction. For purposes of this paragraph(h)(4), references to a sale or other disposition of assets, or an asset purchase transaction, refer only to a transfer of substantial assets, such as a plant or division or substantially all the assets of a trade or business. For purposes of this paragraph(h) (4),whether a service recipient is related to another service recipient is determined under the rules provided in paragraph (f)(2)(ii)of this section. (5)Dual status.If a service provider provides services both as an employee of a service recipient and as an independent contractor of a service recipient,the service provider must separate from service both as an employee and as an independent contractor to be treated as having separated from service.If a service provider ceases providing services as an independent contractor and begins providing services as an employee,or ceases providing services as an employee and begins providing services as an independent contractor,the service provider will not be considered to have a separation from service until the service provider has ceased providing services in both capacities.Notwithstanding the foregoing,if a service provider provides services both as an employee of a service recipient and a member of the board of directors of a corporate service recipient(or an analogous position with respect to a non-corporate service recipient),the services provided as a director 'rlh ;T1,A,o 2024 `'J,o t;la o oI "I a o/r 11"I"',I l"I', / oIk,,s 34 2917 1„409AA IDe-Iiiirniiboirn aural covered p1lairn ,,,26 „11:J1R..§1„409AA are not taken into account in determining whether the service provider has a separation from service as an employee for purposes of a nonqualified deferred compensation plan in which the service provider participates as an employee that is not aggregated with any plan in which the service provider participates as a director under paragraph(c)(2)(ii) of this section. In addition, if a service provider provides services both as an employee of a service recipient and a member of the board of directors of a corporate service recipient(or an analogous position with respect to a non-corporate service recipient), the services provided as an employee are not taken into account in determining whether the service provider has a separation from service as a director for purposes of a nonqualified deferred compensation plan in which the service provider participates as a director that is not aggregated with any plan in which the service provider participates as an employee under paragraph(c)(2)(ii)of this section. (6) Collectively bargained plans covering multiple employers. Notwithstanding the foregoing provisions of this paragraph(h),to the extent a plan is established pursuant to a bona fide collective bargaining agreement covering services performed by employees for multiple employers, such plan may define a separation from service in a reasonable manner that treats the employee as not having separated from service during periods in which the employee is not providing services but is available to perform services covered by the collective bargaining agreement for one or more employers, provided that the definition also provides that the employee must be deemed to have separated from service at a specified date not later than the end of any period of at least 12 consecutive months during which the employee has not provided any services covered by the collective bargaining agreement to any participating employer. This paragraph(h)(6)applies only if the definition of separation from service provided by the collective bargaining agreement was the subject of anu's length negotiations between employee representatives and two or more employers, the agreement between employee representatives and such employers satisfies section 7701(a)(46), and the circumstances surrounding the agreement evidence good faith bargaining between adverse parties over such definition. (i)Specified employee—(1)In general.The term specified employee means a service provider who,as of the date of the service provider's separation from service,is a key employee of a service recipient any stock of which is publicly traded on an established securities market or otherwise.For purposes of this paragraph(i)(1),a service provider is a key employee if the service provider meets the requirements of section 416(i)(1)(A)(i), (ii), or (iiIl) (applied in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the 12—month period ending on a specified employee identification date. If a service provider is a key employee as of a specified employee identification date, the service provider is treated as a key employee for purposes of this paragraph(i)for the entire 12—month period beginning on the specified employee effective date. (2)Definition of compensation.For purposes of identifying a specified employee by applying the requirements of section 416(i)(1)(A)(i),(ii),and(Ilii),the definition of compensation under§ 1.415(c) 2(a)is used,applied as if the service recipient were not using any safe harbor provided in§ 1.415(c) 2(d),were not using any of the elective special timing rules provided in § 1.415(c) 2(e), and were not using any of the elective special rules provided in § 1.415(c) 2(g). Notwithstanding the foregoing, a service recipient may elect to use any available definition of compensation under section 415 and the regulations thereunder in accordance with the election requirements set forth in paragraph(i)(8)of this section,including any available safe harbor and any available election under the timing rules or special rules,provided that the definition is applied consistently to all employees of the service recipient for purposes of identifying specified employees. A service recipient may elect to use such an alternative definition regardless of whether another definition of compensation is being used for purposes of a qualified plan sponsored by the service recipient. However,once a list of specified employees has become effective,the service recipient cannot change the definition of compensation for purposes of identifying specified employees for the period with respect to which such list is effective. (3) Specified employee identification date. Unless another date is designated in accordance with the requirements of this paragraph(i)(3) and paragraph(i)(8) of this section, the specified employee identification date is December 31. A ll, ;'l'l,A,o 2024 s ``'J,o t;la o ol I a o/r l l"I"',I l"I', AA)I .s 3 5 2918 1 A09A--1 IDe-Iiiirniiboirn aural coveired p1lairn ..,26 ..11=..IIR..§1 A09A--1 service recipient may designate in accordance with the requirements of paragraph(i)(8)of this section any other date as the specified employee identification date,provided that a service recipient must use the same specified employee identification date with respect to all nonqualified deferred compensation plans,and any change to the specified employee identification date may not be effective for a period of at least 12 months. The service recipient may designate a specified employee identification date in each plan or in a separate document applicable to all plans,provided that the service recipient will not be treated as having designated a specified employee identification date before the designation is legally binding on the service recipient and all affected service providers. Any designation of a specified employee identification date made on or before December 31, 2007, may be applied to any separation from service occurring on or after January 1, 2005, unless and until subsequently changed pursuant to this paragraph(i)(3). (4) Specified employee effective date. Unless another date is designated in accordance with the requirements of this paragraph(i)(4)and paragraph(i)(8)of this section,the specified employee effective date is the first day of the fourth month following the specified employee identification date.A service recipient may designate in accordance with the requirements of paragraph(i)(8)of this section any date following the specified employee identification date as the specified employee effective date, provided that such date may not be later than the first day of the fourth month following the specified employee identification date,and provided further that a service recipient must use the same specified employee effective date with respect to all nonqualified deferred compensation plans, and any change to the specified employee effective date may not be effective for a period of at least 12 months. The service recipient may designate a specified employee effective date through inclusion in each plan document or through a separate document applicable to all plans,provided that the service recipient will not be treated as having designated a specified employee effective date on any date before the designation is legally binding on the service recipient and all affected service providers.Any designation of a specified employee effective date made on or before December 31,2007, may be applied to any separation from service occurring on or after January 1,2005,unless and until subsequently changed pursuant to this paragraph(i)(4). (5)Alternative methods of satisfying the six-month delay rule.A plan may provide,in accordance with the requirements of paragraph(i)(8) of this section,for an alternative method to identify service providers who will be subject to the six- month delay rule provided in section 409A(a)(2)(B)(i), provided that the alternative method is reasonably designed to include all specified employees (determined without respect to any available service recipient elections), the alternative method is an objectively determinable standard providing no direct or indirect election to any service provider regarding its application, and the alternative method results in either all service providers or no more than 200 service providers being identified in the class as of any date. Use of such an alternative method will not be treated as a change in the time and form of payment for purposes of§ 1.409A 2(b) (the subsequent deferral rules), even if the service provider is not a specified employee when the payment is delayed. (6) Corporate transactions—(i) Mergers and acquisitions of public service recipients. If as a result of a corporate transaction,two or more separate service recipients,more than one of which has stock outstanding that is publicly traded on an established securities market or otherwise immediately before the transaction,become one service recipient,any stock of which is publicly traded on an established securities market or otherwise immediately after the transaction(resulting public service recipient),the resulting public service recipient's neat specified employee identification date and specified employee effective date following the corporate transaction are the specified employee identification date and specified employee effective date that the acquiring service recipient would have been required to use absent such transaction.For this purpose, in the case of a corporate merger, the acquiring service recipient is the service recipient that included the surviving corporation in such merger,in the case of an acquisition by a corporation of the stock of another corporation,the acquiring service recipient is the service recipient that included the corporation that acquired such stock, and in all other cases,the surviving service recipient is determined on the basis of all of the facts and circumstances.For the period between the transaction and the next specified employee effective date,the list of specified employees of the resulting public service recipient is determined by combining the lists of specified employees of all service recipients participating in the transaction ll, ti;'l'lnAzV 2024 `'J,o t;la o ol I a o/r 11"I"',I l"I', //ol '.s 3 2919 1 A09A--1 De-Iiiiiiiboins alma covered p1lalrn ..,26 J1:J1R..§1 A09A--1 that were in effect at the date of the corporate transaction, ranking such specified employees in order of the amount of compensation used to determine each specified employee's status as a specified employee,and treating the top 50 of such specified employees, plus any employees described in section 416(i)(1)(H) or section 416(i)(1)(Ilii) and the regulations thereunder (relating to 1—percent and 5—percent owners) who are not included in such top 50 specified employees, as specified employees for the period between the corporate transaction and the neat specified employee effective date. Alternatively, the resulting service recipient may elect in accordance with the requirements of paragraph(i)(8) of this section to use any reasonable method to determine the specified employees of the resulting service recipient, including the use of an alternative method of compliance described in paragraph(i)(5)of this section,provided that such method is adopted no later than 90 days after the corporate transaction and applied prospectively from the date the method is adopted. (ii)Mergers and acquisitions of nonpublic service recipients.If as part of a corporate transaction a service recipient that does not have outstanding stock that is publicly traded on an established securities market or otherwise immediately before the transaction(initial private service recipient), and a service recipient with stock outstanding that is publicly traded on an established securities market or otherwise immediately before the transaction(initial public service recipient),become a single service recipient having stock that is publicly traded on an established securities market or otherwise immediately after the transaction(resulting public service recipient), the resulting public service recipient's next specified employee identification date and specified employee effective date following the corporate transaction are the specified employee identification date and specified employee effective date that the initial public service recipient would have been required to use absent such transaction. For the period after the date of the corporate transaction and before the next specified employee effective date,the specified employees of the initial public service recipient immediately before the transaction continue to be the specified employees of the resulting public service recipient, and no service providers of the initial private service recipient are required to be treated as specified employees. (iii) Spinoffs. If as part of a corporate transaction, a service recipient with stock outstanding that is publicly traded on an established securities market or otherwise immediately before the transaction(initial public service recipient),becomes two or more separate service recipients,each with stock outstanding that is publicly traded on an established securities market or otherwise immediately after the transaction (post-transaction public service recipients), the next specified employee identification date of each of the post-transaction public service recipients is the specified employee identification date that the initial public service recipient would have been required to use absent such transaction. For the period after the date of the corporate transaction and before the next specified employee effective date,the specified employees of the initial public service recipient immediately before the transaction continue to be the specified employees of the post-transaction public service recipients. (iv)Public offerings and other corporate transactions.If as part of an initial public offering or corporate transaction not described in paragraph(i)(6)(ii)or(iii)of this section,a service recipient with no outstanding stock that is publicly traded on an established securities market or otherwise immediately before such offering or other transaction(initial private service recipient),becomes one or more service recipients with stock outstanding that is publicly traded on an established securities market or otherwise immediately after such offering or other transaction(post-transaction public service recipient), each post-transaction public service recipient has a specified employee identification date of December 31 and a specified employee effective date of April 1, effective retroactively to the December 31 and April 1 next preceding the offering or other transaction for purposes of identifying the specified employees between the corporation transaction and the next December 31. Alternatively,a post-transaction public service recipient may elect in accordance with the requirements of paragraph(i)(8)of this section,a specified employee identification date and specified employee effective date on or before the date of the offering or other transaction. If a public service recipient makes such an election,for the period after the offering or other transaction and before the next specified employee effective date,the specified employees of the post- transaction public service recipient consist of the service providers that at the time of the offering or other transaction would have been classified as specified employees of the initial private service recipient, had the initial private service ll, ;T1,A,'V 2024 `'j,o t;la o oI I a o P,,l, "I"',Ir;l"I' / oI '.s 37 2920 1 A09A--1 IDe-Iiiirniiboirn airnd covered p1lairn ..,26 ..11=..11R..§1 A09A--1 recipient elected the same specified employee identification date and specified employee effective date as selected by the post-transaction public service recipient, and had such initial private service recipient had stock publicly traded on an established securities market or otherwise as of the specified employee identification date preceding the transaction. (v) Alternative methods of compliance. For purposes of this paragraph(i)(6), references to specified employees as of a corporate transaction or offering include any specified employees identified through the use of an alternative method described in paragraph(i)(5)of this section,where the use of such alternative method was established and effective at the time of the corporate transaction or offering. (7) Nonresident alien employees. For purposes of determining whether an employee meets the requirements of section 416(i)(1)(A)(i),(ii),or(Ilii)(applied in accordance with the regulations thereunder and disregarding section 416(i)(5)),and therefore is a key employee,the incorporation of the rules of§ 1.415(c) 2(g)(5)regarding the definition of compensation applies. Accordingly, the rule of § 1.415(c) 2(g)(5)(i), generally requiring the treatment as compensation of certain compensation excludible from an employee's gross income due to the location of the services or the identity of the employer, applies. In addition, a service recipient may elect in accordance with paragraph(i)(8)of this section to apply the rule of § 1.415(c) 2(g)(5)(ii)to not treat as compensation certain compensation excludible from an employee's gross income on account of the location of the services or the identity of the employer that is not effectively connected with the conduct of a trade or business within the United States.A service recipient may elect to apply the rule of§ 1.415 2(g)(5)(ii)regardless of whether the service recipient has elected to apply the rule to a qualified plan sponsored by the service recipient;however, once a list of specified employees has become effective, any election of the rule for that period may not be changed. Notwithstanding the foregoing,any election of the rule made before January 1,2008,may be effective with respect to any specified employee identification date on or before December 31,2007. (8) Elections affecting the identification of specified employees. The elections described in paragraphs (i)(2)through (7)of this section are effective only as of the date that all necessary corporate action has been taken to make such elections binding for purposes of all affected nonqualified deferred compensation plans in which the service providers of the service recipient that would become a specified employee due to the application of such election participate. Where a taxpayer attempts to make an election under paragraph(i)(2), (3), (4), (5), (6),or(7)of this section but such election is not binding on all the affected nonqualified deferred compensation plans and applied consistently to all such service providers, the election is not effective and the rule under paragraph(i)(2),(3),(4),(5),(6),or(7)of this section,as applicable,that would apply absent an election is applicable for identifying specified employees. 0)Nonresident alien.(1)Except as provided in paragraph 0)(2)of this section,the term nonresident alien means an individual who is— (i)A nonresident alien within the meaning of section 7701(b)(1)(B);or (ii)A dual resident taxpayer within the meaning of§301.7701(b) 7(a)(1)of this chapter with respect to any taxable year in which such individual is treated as a nonresident alien for purposes of computing the individual's U.S.income tax liability. (2)The term nonresident alien does not include— . ll, ;'l'l,A,o 2024 ``,j,o t;la o ol I a o/r 11"I"',I l"I', //till's 8 2921 1 A09A--1 IDe-15irniCioirn aural covered p1lairn ..,26 ..11=..IIR..§1 A09A--1 (i)A nonresident alien with respect to whom an election is in effect for the taxable year under section 6013(g)to be treated as a resident of the United States; (ii) A former citizen or long-term resident(within the meaning of section 8 77(e)(2))who expatriated after June 3, 2004, and has not complied with the requirements of section 7701(n);or (iii)An individual who is treated as a citizen or resident of the United States for the taxable year under section 8 77(g). (k) Established securities market. The term established securities market means an established securities market within the meaning of§ 1.897 1(m). (1) Stock right.The term stock right means a stock option(other than an incentive stock option described in section 422 or an option granted pursuant to an employee stock purchase plan described in section 423)or a stock appreciation right. (m)Separation pay plan.The term separation pay plan means any plan that provides separation pay or,where a plan provides both amounts that are separation pay and that are not separation pay, that portion of the plan that provides separation pay. The term separation pay means any deferral of compensation(before the application of the exclusions from the definition of a deferral of compensation set forth in paragraph(b)(9) of this section) that will not be paid under any circumstances unless the service provider has had a separation from service, whether voluntary or involuntary, including payments in the form of reimbursements of expenses incurred,and the provision of in-kind benefits.A deferral of compensation that the service provider may receive without a separation from service does not become separation pay merely because the service provider elects to receive or receives the payment after or upon a separation from service.A deferral of compensation does not fail to be separation pay merely because the payment is conditioned upon the execution of a release of claims, noncompetition or nondisclosure provisions,or other similar requirements. Notwithstanding the foregoing, any amount, or entitlement to any amount,that acts as a substitute for, or replacement of, amounts deferred by the service recipient under a nonqualified deferred compensation plan constitutes a payment of compensation or deferral of compensation under such nonqualified deferred compensation plan. (n) Involuntary separation from service—(l)In general. An involuntary separation from service means a separation from service due to the independent exercise of the unilateral authority of the service recipient to terminate the service provider's services, other than due to the service provider's implicit or explicit request, where the service provider was willing and able to continue performing services. An involuntary separation from service may include the service recipient's failure to renew a contract at the time such contract expires,provided that the service provider was willing and able to execute a new contract providing terms and conditions substantially similar to those in the expiring contract and to continue providing such services. The determination of whether a separation from service is involuntary is based on all the facts and circumstances. Any characterization of the separation from service as voluntary or involuntary by the service provider and the service recipient in the documentation of the separation from service is presumed to properly characterize the nature of the separation from service. However, the presumption may be rebutted where the facts and circumstances indicate otherwise. For example, if a separation from service is designated as a voluntary separation from service or resignation, but the facts and circumstances indicate that absent such voluntary separation from service the service recipient would have terminated the service provider's services, and that the service provider had knowledge that the service provider would be so terminated, the separation from service is involuntary. ll, ti;'l'lnAzV 2024 `'j,o t;la o ol I a o/r 11"I"',I l"I', //ol '.s 39 2922 1„ 09A--1 IDe-15irniCioirn aural covered p1lairn ,,,26 „11:J1R..§1„ 09A--1 (2)Separations from service for good reason—(i)In general.Notwithstanding paragraph(n)(1)of this section,a service provider's voluntary separation from service will be treated for purposes of this section and§§ 1.409A 2 through 1.409A 6 as an involuntary separation from service if the separation from service occurs under certain limited bona fide conditions, where the avoidance of the requirements of section 409A is not a purpose of the inclusion of these conditions in the plan or of the actions by the service recipient in connection with the satisfaction of these conditions,and a voluntary separation from service under such conditions effectively constitutes an involuntary separation from service. Generally such conditions will be prespecified under an agreement to provide compensation upon a separation from service for good reason. Such a good reason(or a similar condition)must be defined to require actions taken by the service recipient resulting in a material negative change to the service provider in the service relationship,such as the duties to be performed,the conditions under which such duties are to be performed, or the compensation to be received for performing such services. Other factors taken into account in determining whether a separation from service for good reason effectively constitutes an involuntary separation from service include the extent to which the payments upon a separation from service for good reason are in the same amount and are to be made at the same time and in the same form as payments available upon an actual involuntary separation from service, and whether the service provider is required to give the service recipient notice of the existence of the condition that would result in treatment as a separation from service for good reason and a reasonable opportunity to remedy the condition. (ii) Safe harbor. For purposes of this section and §§ 1.409A 2 through 1.409A 6, if a plan provides that a voluntary separation from service will be treated as an involuntary separation from service if the separation from service occurs under certain express conditions,a separation from service satisfying the conditions set forth in the plan will be treated as an involuntary separation from the service if the necessary conditions(or set of conditions)require the following: (A)The separation from service must occur during a pre-determined limited period of time not to exceed two years following the initial existence of one or more of the following conditions arising without the consent of the service provider: (1)A material diminution in the service provider's base compensation. (2)A material diminution in the service provider's authority,duties,or responsibilities. (3) A material diminution in the authority, duties, or responsibilities of the supervisor to whom the service provider is required to report, including a requirement that a service provider report to a corporate officer or employee instead of reporting directly to the board of directors of a corporation(or similar governing body with respect to an entity other than a corporation). (4)A material diminution in the budget over which the service provider retains authority. (5)A material change in the geographic location at which the service provider must perform the services. (6)Any other action or inaction that constitutes a material breach by the service recipient of the agreement under which the service provider provides services. ll, ti;'l'lnAzV 2024 `'j,o t;la o ol lf a o/r 11-1"I'1r 1"1', //ol '.s 40 2923 1„409AA IDe-15irniCioirn aural covered p1lairn ,,,26 „11.11R..§1„409AA (B) The amount, time, and form of payment upon the separation from service must be substantially identical to the amount,time and form of payment payable due to an actual involuntary separation from service, to the extent such a right exists. (C)The service provider must be required to provide notice to the service recipient of the existence of the condition described in paragraph(n)(2)(ii)(A)of this section within a period not to exceed 90 days of the initial existence of the condition,upon the notice of which the service recipient must be provided a period of at least 30 days during which it may remedy the condition and not be required to pay the amount. (3)Special rule for certain collectively bargained plans.Notwithstanding the foregoing,for purposes of this paragraph (n),to the extent a plan is subject to a bona fide collective bargaining agreement covering services performed for multiple employers under which an employee must separate from service with all such employers in order to receive a payment, such plan may use any reasonable definition of involuntary separation from service, provided that such definition is consistent with any definition of a separation from service adopted under paragraph(h)(6) of this section, and provided further that the definition of an involuntary separation from service provided by the collective bargaining agreement was the subject of anu's length negotiations between employee representatives and two or more employers, the agreement between employee representatives and such employers satisfies section 7701(a)(46), and the circumstances surrounding the agreement evidence good faith bargaining between adverse parties over such definition. (o)Earnings.Whether a deferred amount constitutes earnings on an amount deferred,or actual or notional income attributable to an amount deferred,is determined under the principles defining income attributable to the amount taken into account under §31.3121(v)(2) 1(d)(2)of this chapter. Accordingly,with respect to an account balance plan,earnings on an amount deferred generally include an amount credited on behalf of a service provider under the terms of the plan that reflects a rate of return that does not exceed either the rate of return on a predetermined actual investment or,if the income does not reflect the rate of return on a predetermined actual investment, a reasonable rate of interest. With respect to nonaccount balance plans, eamings on an amount deferred generally include an increase, due solely to the passage of time, in the present value of the future payments to which the service provider has obtained a legally binding right,the present value of which constituted the amount deferred (determined as of the date such amount was deferred),but only if the amount deferred was determined using reasonable actuarial assumptions and methods.A right to eamings on an amount deferred generally is treated as a right to a deferral of compensation for purposes of this section and §§ 1.409A 2 through 1.409A 6. However,for purposes of any provision of this section and §§ 1.409A 2 through 1.409A 6 referring to earnings on deferred compensation(or similar terms),the use of an unreasonable rate of return,or unreasonable actuarial assumptions and methods,generally will result in the treatment of some or all of such a right to deferred compensation as a right only to deferred compensation,and not a right to earnings on deferred compensation, so that the provision will not be applicable.With respect to plans that are neither account balance plans nor nonaccount balance plans,these rules apply by analogy. (p)In-kind benefits.The term in-kind benefits refers to services provided to or on behalf of a service provider,such as financial planning services,or tangible personal or real property made available for use by or on behalf of the service provider, such as the use of an aircraft or vehicle,and does not refer to a transfer of property within the meaning of section 83 and the regulations thereunder,or a promise to transfer,or an option to purchase or receive,property in the future. (q)Application of definitions and rules.The definitions and rules set forth in paragraphs(a)through(p)of this section apply for purposes of section 409A,this section,and§§ 1.409A 2 through 1.409A 6. ll, ;'l'l,A,o 2024 `'J,o t;la o ol I a o/r l l"I"',I l"I', //ol '.s 41 2924 1„ 09A-1 De'15lnllboin aind coveIPed p1lain ,,,26 „11_„11R„§1„ 09A-1 Credits [T.D. 9321,721 R 19276, 19278,April 17,2007;721 R 41620,July 31,2007] SOURCE: T.D. 6500,251 R 11402,Nov. 26, 1960;251 R 14021,Dec. 31, 1960,unless otherwise noted. Current through Jan. 8,2024, 89 FR 891. Some sections may be more current. See credits for details. Footnotes 1 So in original;probably should read"§31.3121(v)(2)-1(c)(1)(iii)(B). 1 So in original;probably should read"§31.3121(v)(2)-1(c)(1)(iii)(B). Ellulll will' ociliinnelufl 202A 0lloarm on Reishrs ar c u.'nm far ari�,,h fl 0',S GoNa°rminwnw �,Vo 0 ll, ;TI,A,, 2024 "r I s `'j,o t;la o ol a o/r 11"I"',I l"I', A )ll',s 42 2925