The PGA seems to have wandered into the pension universe with the FedEx Cup, a deferred-compensation-plan-slash-golf-championship where participants are publically awarded allocation points based on how well they finish in golf tournaments. The number of allocation points determines a participant/player’s share of the $35 million FedEx Cup deferred compensation award. It is the deferred compensation element in the FedEx Cup which makes evaluating it as a deferred comp plan more applicable than evaluating it as a golf championship.
First, evaluate how is the FedEx Cup is funded, and how it will distribute those funds. The PGA’s official website for the FedEx Cup states that the FedEx Cup will award a total of $35 million in bonus money at the conclusion of the playoffs including $10 million to the FedEx Cup Champion. The SportingNews.com is reporting that the $35 million is to be paid as deferred compensation, with $10 million in deferred compensation to be paid to the FedEx Cup Champion.
Next, evaluate how the funds in the plan are allocated to participants. The FedEx Cup allocates the $35 million contribution based on points awarded to the participants during the 33-week PGA Tour regular season according to how they finish in each of 36 events held during that 33-week period. Participants can also earn points by playing additional events which are played the same weeks as the World Gold Championship and the British Open. At the end of the 33-week period, the participants with the top 144 point totals are eligible to play in 4 specific tournaments. It is the points awarded in those 4 tournaments which will be used to allocate the $35 million contribution to the deferred compensation plan.
Then, evaluate the plan’s rules on eligibility. For the FedEx Cup, only members of the PGA Tour are eligible to participate and earn points. A non-PGA Tour member, special temporary member or an amateur is not eligible to earn points. Caddies are also not eligible to earn points, and thus are not eligible to receive an allocation of the $35 million contribution. The caddie issue is what prompted the article on Sportingnews.com.
Finally, does the FedEx Cup meet the definition of a deferred comp plan contained in the recently-released Final 409A Regs? At first glance, I think it does. The Final 409A Regs define a nonqualified deferred compensation plan as a plan which provides for the deferral of income. The FedEx Cup provides for a deferral of income.
The Final 409A Regs further provide:
that a plan generally provides for the deferral of compensation if, under its terms and the relevant facts and circumstances, a service provider has a legally binding right during a taxable year to compensation that, pursuant to its terms, is or may be payable to (or on behalf of) the service provider in a later year. For this purpose, an amount generally is payable at the time the service provider has a right to currently receive a transfer of cash or property, including a transfer of property includible in income under section 83, the economic benefit doctrine or section 402(b). Accordingly, a taxable transfer of an annuity contract is treated as a payment for purposes of section 409A.
Unless something goes horribly wrong in the PGA world, the participants in the FedEx Cup will have a legally binding right to their share of the $35 million in deferred comp.
More on the intersection between the FedEx Cup and the Final 409A Regs in coming weeks.
[tags]409A, FedExCup, FedEx Cup, golf, allocation, points, deferred, comp, compensation, PGA, pension, retirement, ERISA[/tags]