NQDC plan Sec. 409A compliance deadline extended again
On Oct. 22, 2007, the U.S. Treasury Department and the IRS issued Notice 2007-86, which generally gives employers until Dec. 31, 2008, to bring their nonqualified deferred compensation (NQDC) plans into compliance with the final NQDC regulations under Section 409A of the Internal Revenue Code. Previously, the deadline was Dec. 31, 2007.
This notice supersedes Notice 2007-78, issued Sept. 10, 2007, which extended only the deadline for bringing plan documents into compliance, but kept the effective date of the final regulations at Jan. 1, 2008. The purpose of broadening the extension is to provide employers adequate time to analyze their NQDC plans and make informed, reasoned decisions regarding the changes needed to bring their plans into compliance with the final regulations.
Sec. 409A applies to a broad variety of deferred compensation arrangements and sets forth requirements that affected plans must satisfy. Any employer with an NQDC plan — a deferred compensation plan that is generally designed to favor certain individuals or groups of individuals — should make sure that the plan is in compliance with the law. The penalties for noncompliance can be severe: Plan participants will be taxed on plan benefits at the time of vesting, and a 20% penalty tax and potential interest charges also will apply.
Employers should identify all plans or arrangements that may be subject to Sec. 409A and have them reviewed to determine whether they’re operationally and administratively Sec. 409A compliant. If a plan isn’t compliant, the employer must bring the plan and plan documents into conformity with Sec. 409A by Dec. 31, 2008.
Employers must also have operated their plans in “good faith” compliance with Sec. 409A retroactive to 2005, when the requirements first went into effect.
The Treasury Department and the IRS expect to issue further guidance regarding a limited voluntary compliance program that will help companies correct specific unintentional operational violations of Sec. 409A. But no date has been set for issuing that guidance.
Please contact us at 630-285-0215 to find out exactly how this IRS notice affects your NQDC plans.