Limited 409A Relief! IRS Delays Plan Document Compliance Deadline One Year

September 11, 2007

Late yesterday the IRS issued Notice 2007-78 in response to employer requests for an extension of the deadline to bring nonqualified deferred compensation plans into compliance with the final regulations under Code Section 409A (issued April 10, 2007). The final regulations are effective January 1, 2008, and plan documents until yesterday must have been made compliant with those regulations by the end of this year. Employers now have another year, until December 31, 2008, to make all nonqualified deferred compensation plans subject to Code Section 409A fully compliant in form with the final regulations.
The January 1, 2008 effective date for the final regulations, however, has not been extended. This means that in operation nonqualified deferred compensation plans must comply with the final regulations beginning January 1, 2008. The many transition rules found in the final regulations also have not been extended by this IRS notice.
The IRS notice also provides more welcome news for nonqualified deferred compensation plan sponsors. The IRS announced that it will issue guidance which would contain a limited voluntary compliance program for correction of unintentional operational violations of Code Section 409A. Without such a program, the participant in a plan which ran afoul of Code Section 409A suffered adverse tax consequences with no ability to correct the defect.
While any delay of the compliant plan document requirement is appreciated, the fact that nonqualified deferred compensation plans must be operated in compliance with the final regulations starting January 1, 2008 may lead many plan sponsors to go ahead with finalizing their plan documents. It sometimes can be difficult to operate a plan without having the terms committed to writing.
While the length of the final regulations (93 pages in the Federal Register) might be daunting, nonqualified plan sponsors do not have to go it alone. The attorneys at Ruder Ware are ready to assist with the review and updating of nonqualified deferred compensation plan documents. Please contact Mary Ellen Schill, the author of this article, or any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.

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