Pension Protection Act Blog

I recently blogged about the FedEx Cup - a golf championship newly created by the PGA this year where players are awarded points throughout a defined 33-week period. At the end of that period, the 144 players with the most points will then play in a series of 4 tournaments. At the end of the 4th tournament, $35 million in deferred compensation is allocated among 30 of those players, with the top player receiving $10 million in deferred compensation.

It is the deferred compensation nature of the FedEx Cup which caught my attention. For pension geeks, the FedEx Cup is more like watching a reality TV show where players compete for allocation points than it is like a golf tournament. Especially because the FedEx Cup points awarded each week are separate and distinct from the actual monetary prizes for each tournament throughout the 33-week regular season and the 4-week post-season.

I think the FedEx Cup can be analyzed as a deferred comp plan. One of my colleagues today said he it trying to evaluate the FedEx Cup as an incentive pay plan, not as a deferred comp plan. As an incentive pay plan, the FedEx Cup might be interesting but it is the deferred nature of the FedEx Cup which has both sportwriters, golfers and pension geeks watching this golf tournament. As the FedEx Cup group of potentially eligible participants narrowed this week after the Barclay, the age disparity between the potentially eligible participants became even more apparent.

Adam Schupak, a senior writer with Golfweek magazine, has more details about the structure of the FedEx Cup’s deferred nature in his article Deferred Delivery. He provides that the FedEx Cup replaced two different PGA retirement plans after a committee of players and board members discussed deferred compensation plans with several financial advisors.

Unlike the two previous plans, which contained vesting schedules based on a points system, the current plan is 100% vested.

Richard Sandomir, in his article A FedEx Cup Prize Well Worth the Wait in the New York Times (registration required), provides that the minimum distribution age is 45 with the maximum distribution age starting at age 60. If a player plays at least 15 tournaments a year, distribution is delayed until age 60. If a player does not play in at least 15 tournaments a year, distributions begin. Distributions are then spread over a 5-year time frame.

On a side note, attorneys at 92 law firms have signed a public letter to the IRS. In the letter, the firms ask the IRS to extend the deadline for plans to comply with the new Final 409A Regulations to December 31, 2008. The current deadline is December 31, 2007. The firms contend that the December 31, 2007, deadline to comply is not enough time to review existing plans and make any necessary plan amendments. (hat tip to Benefitslink.com)

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