Under an account balance plan
, however, the present value is generally the amount credited to the participant's account-including the principal amount and any credited earnings or losses-provided that earnings and losses are credited at least annually.
Under the regulations, the manner in which the amount deferred for a period is determined depends upon whether the nonqualified deferred compensation plan is an account balance plan
or a nonaccount balance plan.
* Account Balance Plans
. An "account balance plan
" is essentially a defined contribution plan - one under which deferred amounts and additional amounts treated as income thereon are credited to a participant's account and the benefit payable from the plan is based solely on the participant's account balance.(7) The section 3121(v) rules for account balance plans
are rather straightforward.
An account balance plan
establishes a separate account for each employee, with the employer contributing a specific amount (usually based on a percentage of pay) to each account.
Pursuant to the property settlement incorporated into their divorce judgment, A transferred to B (1) one third of the nonstatutory stock options; (2) the right to receive deferred compensation payments under the account balance plan
based on 75% of A's account balance under the plan; and (3) the right to receive a single-sum payment of $25 under the other deferred compensation plan on A's termination of employment.
Any plan that is not an account balance plan
is a nonaccount balance plan.
To calculate the correct amount of FICA, it is necessary to calculate the "amount deferred." This calculation will vary depending on whether the plan is an "account balance plan
" or a "nonaccount balance plan."
For example, if an account plan has several distribution options, the plan may be treated as an account balance plan
and, therefore, a reasonable FICA amount may be calculated, if the options are actuarially equivalent.
From the sponsor's perspective, the account balance plan
is similar to a defined benefit, career pay pension plan; participants' benefits are based on compensation earned during each year of their career.
Employee and employer account balance plans
are defined contribution plans, in which the accrued benefit is the account balance in a defined contribution plan as of a specific date.
Account balance plans
: The regulations describe two alternative methods for attributing compensation under account balance plans
(That regulation aggregates deferred compensation arrangements of the same one of eight "types," that is, elective deferrals to account balance plans
, nonelective deferrals to account balance plans
, nonaccount balance plans, separation pay plans, in-kind benefits and reimbursements, split-dollar life insurance arrangements, modified foreign earned income arrangements, and stock rights plans.) In addition, an additional tax of 20 percent on such includible amounts applies.