IRS EXTENDS SECTION 409A TRANSITION RELIEF TO DECEMBER 31, 2008
The IRS, in Notice 2007-86, extended to December 31, 2008 the Section 409A transition deadline scheduled to expire on December 31, 2007. Although the final Section 409A regulations are effective January 1, 2008, taxpayers are not required to comply with the requirements of the final regulations during 2008.
December 31, 2008 Transition Relief
Extension of the transition relief means that necessary amendments of deferred compensation arrangements, agreements and plans must be completed by December 31, 2008.
"Piggy-back elections"—the payment of benefits under a nonqualified plan based on the election under a qualified plan—can continue through December 31, 2008.
Distribution elections or amendments changing the form or time of payment can still be made in 2008. Similar to the 2006 and 2007 transition rules, a change made in 2008 may not defer receipt of an amount that would otherwise be paid in 2008 or cause a payment to be made in 2008. A payment change that defers receipt of an amount otherwise due in 2008 or causes a payment to be received in 2008 can be made during 2007.
Discounted stock options (other than certain “back-dated” options) and similar stock rights treated as deferred compensation may be amended to comply with Section 409A or be replaced with nondiscounted options or rights before December 31, 2008, provided the amendment is made before the options or stock rights are exercised.
Operational Compliance
Although transition relief has been extended through December 31, 2008, all nonqualified deferred compensation arrangements subject to Section 409A must be operated in reasonable, good faith compliance with Section 409A and applicable guidance. This means, for example, that employers must currently comply with the six-month suspension for certain payments to key employees of a company with publicly-traded stock in its controlled group.
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