One-Year Extension on Section 409A

The Treasury Department and the Internal Revenue Service have granted another year’s extension on the full range of Section 409A, the thicket of tax rules surrounding deferred compensation.

The two agencies had provided an extension last month to document compliance with the new rules, which had been slated to go into effect on Dec. 31—but companies still had to get much of their operational compliance in order by the end of the year anyway. The new pronouncement delays compliance with the rules entirely until Dec. 31, 2008.

Capwell

“It’s very good news,” says Jeffrey Capwell of the law firm McGuire Woods. “This provides employers an additional year to consider how to modify or revise their plans in operation and in form to comply with 409A.”

The complex set of rules was drafted in response to the 2004 American Jobs Creation Act to curb abuses of non-qualified deferred compensation plans. While proposed rules were issued in 2005, final Section 409A regulations weren’t issued until April 2007. Since then, companies and their counsel have asked for more time to figure out which plans are affected and to make the necessary changes to get them into compliance.

“This is what everybody wanted,” Capwell says. “This essentially pushes everything back for a year, including the obligation to amend plans.”

As Compliance Week reported, the Treasury Department and the IRS last month issued Notice 2007-78, which gave companies more time to get their plans into documentary compliance, but still required all affected non-qualified deferred compensation plans to be in operational compliance with the final regulations beginning in 2008. However, commenters said the transition relief didn’t allow service recipients and service providers enough time to analyze all of their plans and make decisions regarding the changes necessary for bringing their existing arrangements into compliance with the final rules.

In response, the agencies issued Notice 2007-86, which generally extends the transitional period for compliance with the final regulations another full year. It also confirms that the Treasury and the IRS expect to issue guidance regarding a correction program “as soon as possible.”

Full details will be in the Oct. 30 edition of Compliance Week.