Client Alert: Transition Relief for Code Section 409A Deferred Compensation Arrangements Partially Extended Until December 31, 2008, Subject to Key Limitations
Yesterday, the Treasury Department partially extended, until December 31, 2008, the deadline for amending deferred compensation arrangements to be in "documentary compliance" with Section 409A of the Internal Revenue Code, subject to several important caveats. However, the broader transition relief rules under Section 409A related to changes in payment elections have not been extended beyond the end of 2007, significantly reducing the benefit of the extension. Section 409A, enacted by Congress in late 2004, imposes a 20% penalty tax on non-compliant deferred compensation plans and has a wide-ranging and often surprising impact on other types of compensation programs (e.g., severance, stock option, phantom equity and retention programs). The memorandum discusses the extension and its impact on the Section 409A rules.