IRS PROVIDES LIMITED RELIEF FROM 409A DEADLINE
On September 10, 2007, the IRS issued Notice 2007-78, which extends the deadline for full compliance with the written plan document requirements under Section 409A of the Internal Revenue Code to December 31, 2008. Despite the extension, most arrangements will still require some action (including amendment) by December 31, 2007.
- All plans must have in place, by December 31, 2007, a written designation of a compliant time and form of payment. This means that the written plan terms provide an objectively determinable form of payment payable upon one or more of the six trigger events permitted under 409A (namely, separation from service, a change in control, an unforeseeable emergency, a specified date or fixed schedule of payments, disability or death). After 2007, the form and time of distribution under a nonqualified plan may not simply “mirror” the election made under a qualified plan.
- Any designation of installment payments as a series of separate payments must be made by December 31, 2007.
- Transition relief permitting taxpayers to change the time and form of payment is not extended beyond December 31, 2007. This includes changing the form and time of distribution to take advantage of an exemption from 409A; a plan may not be changed in 2008 to take advantage of an available exemption.
In addition, beginning January 1, 2008, deferred compensation arrangements must fully comply in operation with the final 409A regulations. All arrangements must be amended by December 31, 2008, retroactive to January 1, 2008, to accurately reflect compliance with 409A and the operation of the plan through the date of amendment.
In Notice 2007-78, the IRS indicated that it expects to provide a limited voluntary compliance program that will permit taxpayers to correct certain unintentional operational violations of 409A. Although not much is promised, the IRS is signaling its commitment to provide some limited relief.
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