NONQUALIFIED DEFERRED COMPENSATION PLANS AND IRS 409A

1
NONQUALIFIED DEFERRED COMPENSATION PLANSAND
IRS 409A

• Alice E. Helle
• BrownWinick
• 666 Grand Avenue, Suite 2000
• Des Moines, IA 50309-2510
• Telephone [phone]
• Facsimile 515-323-8507
• E-mail helle_at_brownwinick.com

2

• IRC 409A was enacted in 2004 and requires
  nearly all nonqualified deferred comp plans to be
  amended to comply. The deadline for plan
  amendments has been delayed several times, but is
  now December 31, 2008.

3

• Primary effects of 409A
• Restricts flexibility participants and employers
  have to change the time and form of plan
  benefits.
• Places limits on the timing of deferral
  elections.
• Limits the use of some means of securing plan
  benefits.
• Limits in-service distribution options.

4

• Arrangements subject to 409A
• Nonqualified deferred compensation plan is
  broadly defined as any plan providing for the
  deferral of compensation other than
• a qualified plan, or
• a bona fide plan for
• vacation leave
• sick leave
• compensatory time
• disability pay
• death benefits
• MSA, HSA or HRA

5

• A plan includes any agreement, method or
  arrangement
• Including an arrangement that applies to one
  person (NOTE This could be an employment
  agreement doesnt have to be something labeled
  plan.)
• Could be negotiated or not
• Could be ERISA employee benefit plan or not.

6

• Consequences of noncompliance
• Vested deferred comp for the taxable year and all
  preceding taxable years is includable in the
  participants current year gross income
• Affected participant also subject to interest any
  underpayments for past years
• Additional 20 penalty tax applies.

7

• IMPORTANT If you think you may have one (or
  more) of these and you havent already sought
  legal advise, you should do immediately to avoid
  potentially serious tax ramifications.