Avoiding the Traps and Pitfalls of the New 409A Deferred Compensation Rules — A Primer

Foley proudly presented the Web conference: Avoiding the Traps and Pitfalls of the New 409A Deferred Compensation Rules — A Primer.

Section 409A of the Internal Revenue Code has fundamentally changed the rules applicable to various forms of both cash- and equity-based deferred compensation arrangements and imposes draconian penalties for violations.

Most businesses have one or more arrangements in place that are subject to Section 409A. Arrangements that may be subject to Section 409A include employment agreements, long- and short-term bonus and incentive plans, stock option and other equity rights plans, change in control agreements, severance pay plans, voluntary deferred compensation plans, and supplemental executive retirement plans.

Compliance with the final Section 409A regulations is required effective January 1, 2008. Plan and other documentation establishing arrangements subject to Section 409A must be amended to comply with the documentation requirements of Section 409A by the end of 2008. Because the changes in the deferred compensation rules are so comprehensive, nearly every deferred compensation arrangement will require revisions to comply with Section 409A.

The penalties for violation of Section 409A, including the failure to amend related documentation on a timely basis, include making all deferred compensation of a similar type currently taxable, plus imposition of a 20 percent additional tax and additional interest penalty.

In this Web conference, members of Foley’s Tax & Employee Benefits Practice identified current arrangements that are subject to Section 409A, described the kinds of amendments that are typically needed, and pointed out the traps and pitfalls that should be anticipated.

For more information, please contact Elie Harris at [email protected].