| |
October 2007
NQDC Plan Section 409A
Compliance Deadline Extended
On October 22, 2007, the Treasury Department and the Internal Revenue Service (IRS) issued Notice 2007-86, extending until December 31, 2008 the deadline for bringing nonqualified deferred compensation (NQDC) plans into compliance with the final NQDC regulations under Section 409A of the Internal Revenue Code.
The previous deadline was December 31, 2007. This notice supersedes Notice 2007-78, issued September 10, 2007, which only extended the deadline for bringing plan documents into compliance, but kept the effective date of the final regulations at January 1, 2008.
The purpose of this extension is to provide employers with more 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 as plan participants will be taxed on plan benefits at the time of vesting, and a 20 percent 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 the plans are operationally and administratively compliant with the law. If a plan is not found to be in compliance, then the employer must bring the plan and plan documents into conformity with Sec. 409A by December 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.
Please note that the compliance deadline refers here only to the documentation that follows the establishment of a deferral program or policy that allows a deferral of income. The IRS clearly has taken the position that it will enforce the penalty provisions of 409A if it finds a violation in practice, whether or not the plan, agreement, program, or policy has been properly documented.
It is important to be aware of the impact of Section 409A on any deferral that has vested since January 1, 2005. Please also note that the deferral agreements that have been made with employees/directors may be legally enforceable as-is, and may require mutual consent for changes to comply by the end-of-2008 deadline.
Further guidance is expected regarding a limited voluntary compliance program to help businesses correct specific unintentional operational violations of Sec. 409A, but no date has been set for issuing that guidance.
Contact the tax specialists at Cherry, Bekaert & Holland today to learn more about how this IRS notice affects your NQDC plans.
FOR MORE INFORMATION, PLEASE CONTACT:
Brooks Nelson, Partner
bnelson@cbh.com
1.800.849.8281
|
Gil Weiner, Managing Director
gweiner@cbh.com
866.859.9792 |
About Cherry, Bekaert & Holland, L.L.P.
As the Southeast’s accounting and consulting Firm of Choice, Cherry, Bekaert & Holland, L.L.P. (CB&H) is uniquely positioned to provide quality, cost-effective and value-added services to a diverse and successful client base. The Firm sets itself apart by delivering the extensive industry specialization and service opportunities of a national firm, but with the accessibility, service continuity and level of personal relationship expected from a local business. Ranked nationally among CPA firms, CB&H’s resource network stretches regionally across six states, including the large metro markets of Atlanta, Charlotte, Hampton Roads, Raleigh, Richmond, Tampa and Washington D.C., and nationally and internationally through an alliance with Baker Tilly International, a worldwide network of independent accounting firms. |
