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October 9, 2007

409A Documentation Limited Relief

409A is a tax code regulating nonqualified deferred compensation. It was enacted in October 2004, and the time for compliance is upon us. Generally, nonqualified deferred compensation plans must comply with the 409A rules beginning January 1, 2008, or risk substantial penalties, both to participant and employer.

In IRS Notice 2007-78, limited relief has been granted for the written documentation part of this requirement. A request has been made for further relief, though, it is unclear whether this will be granted. Assuming that further relief will not be granted, following is a list of "To-Dos" by the end of 2007, and in 2008.

To-Dos by 12/31/07

  1. Review each arrangement that may be subject to the rules.

  2. Designate the programs that are subject to the 409A rules, and determine what, if any, changes need to be made to the program to make them compliant with the rules.

  3. Obtain written election for time and form of distribution.

  4. Create a written definition for good reason applicable to involuntary termination.

  5. Create a written document stating permissible payment events.

  6. 409A compliance definitions can be developed in 2008; though, they will be applicable January 1, 2008.

To-Dos beginning 1/1/08

  • Operate the plan in conformance with IRC Section 409A.

To-Dos by 12/31/08

  • Create a written plan document for each program subject to IRC 409A, with an effective date of 1/1/08, compliant with all of the requirements of IRC 409A.

     

    The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

    As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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