New Proposed Regulations on Deferred Compensation Issued
New Section 409A of the Internal Revenue Code, which has been in effect since January 1, 2005, affects virtually all employers and the employees, directors, and independent contractors who participate in deferred compensation programs covered by the new law. To this point, the only guidance on 409A was Notice 2005-1, which was issued on December 20, 2004. Now on October 4th, the Treasury Department and the IRS issued over 200 pages of proposed regulations that clarify many of the remaining issues, including the types of plans and arrangements subject to the new rules, deadlines for compliance and plan amendments, and permitted methods of transitioning to the new rules.
Larry Grudzien, an ERISA attorney, with whom I conduct continuing education programs, has written an explanation of the nonqualified deferred compensation provisions of the Act, the clarifications provided by the IRS in Notice 2005-1 and the further detailed operational rules relating to elections and distributions, as well as plan terminations under the proposed regulations. He also compares the major provisions of the Act with the law in effect before 2005 so that the impact of the new law can be better understood. Click here to download a copy of Larry's article.