Updated July 29, 2026. Quick answer: There is a second safe harbour, and it has no schedule requirement at all. 4 U.S.C. §114(b)(1)(I)(ii) protects a payment received after termination of employment from a plan “maintained solely for the purpose of providing retirement benefits for employees in excess of the limitations” imposed by the qualified-plan rules. Even a lump sum qualifies — if the plan really is that.
The word doing all the work is “solely”
The statute lists the limitations it means — the qualified-plan contribution and benefit limits. A plan maintained solely to provide benefits above those ceilings qualifies. A plan that also does other things does not.
New York has applied this exception and denied it, which makes the boundary concrete rather than theoretical. In an advisory opinion on a law-firm partner agreement, the Department concluded there were “no facts that indicate … that the Agreement was maintained solely to provide supplemental retirement benefits to equity partners in excess of the limitations of the Firm’s 401(k) plan … Therefore, the exclusion … is not applicable.” The payments were held taxable.
What the ruling teaches
| Plan characteristic | Helps or hurts the argument |
|---|---|
| Plan documents state the excess-benefit purpose explicitly | Helps |
| Benefits are calculated by reference to the qualified-plan limits | Helps |
| The arrangement also serves retention, bonus deferral or partner compensation | Hurts |
| It is simply a nonqualified plan with no stated excess-benefit purpose | Fatal — that was the fact pattern that lost |
So do not assume this exception covers you because your plan is nonqualified. Being nonqualified is what makes the question arise; it is not what answers it. The plan document is the evidence, and it was written long before anyone was thinking about a move. If the schedule route is available, ten years is the far more reliable protection.
Sources
4 U.S.C. §114(a) and §114(b)(1), including subparagraph (I) and its clauses (i) and (ii); IRC §3121(v)(2)(C); IRC §409A(a)(2)(A) and (a)(4)(C); IRC §415 and §401(a)(17). All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.