Year-End Compliance Deadline is Almost Here. Have You Amended Your Nonqualified Deferred Compensation Arrangements to Comply with Section 409A?

 

As a reminder, December 31, 2008 marks the deadline for documentary compliance with Internal Revenue Code Section 409A which governs nonqualified deferred compensation arrangements. Section 409A applies to traditional deferred compensation plans and SERPS, as well as arrangements that are typically not thought of as "deferred compensation," including some change in control agreements, severance plans, and bonus arrangements. Section 409A also impacts some equity and phantom equity arrangements. All such arrangements must be restated or amended by year-end as needed to comply with Section 409A. Failure to comply by the deadline may result in immediate taxation of deferred amounts and a 20% income tax penalty. If your arrangements have not already been reviewed, you should have them reviewed as soon as possible.

 

IRS Grants Some Relief for 403(b) Plans and Tax Sheltered Annuities

 

New regulations governing 403(b) plans take effect January 1, 2009, but at the eleventh hour, the IRS extended the compliance deadline for certain parts of the final regulations. The regulations apply to retirement plans sponsored by non-profit employers and public school employers under Internal Revenue Code section 403(b), frequently referred to as tax sheltered annuities. On December 11, the IRS announced that it is extending the deadline for plan sponsors to adopt new written plans or amend existing plans to December 31, 2009. However, 403(b) plans must still be operated in compliance with the new regulations beginning on January 1, 2009. Therefore, we recommend that employers aim to have their plans in compliance by January 1, 2009, including having a written document in place. If, despite an employer's best efforts, plans are not in compliance by January 1, 2009, the extension will allow an employer to retroactively correct any operational failure during 2009 to conform to the written plan that is ultimately adopted.