IRS Extends Date for Amendment of Deferred Compensation Arrangements
November 2006
In November 2004, we advised you that the American Jobs Creation Act of 2004 had significantly changed the rules relating to nonqualified deferred compensation and that, with a few exceptions, the new rules would apply to most kinds of arrangements providing for the deferral of taxable income if the deferral occurred after December 31, 2004, or there were material modifications to an existing arrangement. These new rules are generally referred to as the Section 409A rules.
The IRS anticipated that it would quickly issue final regulations under Section 409A so that existing deferred compensation agreements and plans could be amended to conform to the new rules. Instead, the IRS issued proposed regulations and preliminary guidance and extended the date by which amendments had to be adopted. We advised you about the proposed regulations in November 2005. That extension was to expire on December 31, 2006. This month, the IRS has again extended the date by which amendments must be adopted to December 31, 2007. In the meantime, nonqualified deferred compensation agreements and plans are generally required to operate in reasonable, good-faith compliance with Section 409A, the proposed regulations, and other Section 409A guidance. In addition, under certain conditions, such agreements and plans may be amended on or before December 31, 2007, to provide for new payment elections.
We will inform you when the IRS has issued final regulations. We can then address with you what document and further operational changes need to be made to your deferred compensation arrangements.
If you have any questions, please contact a member of our Compensation Planning & Employee Benefits Group.