In a deferred compensation plan, which condition creates a substantial risk of forfeiture?

In a deferred compensation plan, which condition creates a substantial risk of forfeiture?

• A. Death
• B. Disability
• C. Requirement to complete continued service
• D. Retirement

Answer: (C)

Substantial risk of forfeiture arises when the right to deferred compensation depends on the employee’s future service. If you must complete a period of continued employment to receive the benefit, then leaving before that period ends could forfeit the payout, creating an SROF. Death or disability typically accelerates or triggers payout regardless of continued service, so they don’t hinge on a continued-service condition. Retirement ends employment but doesn’t inherently create forfeiture if vesting has been achieved; it isn’t a service-continuation risk. So the condition that creates an SROF is the requirement to complete continued service.

Substantial risk of forfeiture arises when the right to deferred compensation depends on the employee’s future service. If you must complete a period of continued employment to receive the benefit, then leaving before that period ends could forfeit the payout, creating an SROF. Death or disability typically accelerates or triggers payout regardless of continued service, so they don’t hinge on a continued-service condition. Retirement ends employment but doesn’t inherently create forfeiture if vesting has been achieved; it isn’t a service-continuation risk. So the condition that creates an SROF is the requirement to complete continued service.