IRC Section 409A Final Regulations (updated October 22, 2007)
The American Jobs Creation Act of 2004 regulates the deferral of compensation, distribution events, payment options and re-deferrals, and compliance. The Act created the addition of Section 409A of the Internal Revenue Code (IRC), which specifically addresses nonqualified deferred compensation plans.
On April 10, 2007, the Treasury Department and the Internal Revenue Service (IRS) published final regulations for nonqualified deferred compensation arrangements governed under IRC Section 409A.
- Final regulations are in line with the earlier proposed regulations.
- With Section 409A, the IRS has formalized best practices for deferred compensation.
- The stability of this post-final regulation environment should have a positive impact on employers and participants considering ways to supplement qualified retirement income.
Highlights of regulations and October 22, 2007, Notice 2007-86:
- January 1, 2009 is the new effective date for compliance with final regulations.
- Transition relief scheduled to expire on December 31, 2007, is now extended to December 31, 2008. This supersedes prior operational and documentary compliance deadlines set by the IRS, including Notice 2007-78 released in September 2007.
- Until January 1, 2009, plan sponsors must operate and administer plans consistent with the plan’s terms, to the extent those terms are consistent with the appropriate guidance, including Notice 2005-1.
- Plan sponsors should consider operating their nonqualified deferred compensation plans consistent with the final regulations as a matter of best practice. Exercising a plan not consistent with final regulations will not be considered a “good faith” interpretation.
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- Detailed summaries and updated marketing materials are currently in development and will be posted when available.
Rely on the Principal Financial Group® (The Principal®) for an edge in complying with Section 409A. As the #1 deferred compensation plan record keeper*, our administrative and plan design expertise can be trusted to help in times of significant regulatory change.
*Based on number of plans record kept (including 401(k) mirror plans), PLANSPONSOR deferred compensation provider stats, PLANSPONSOR.com, December 2006.
