Guidance published by the Internal Revenue Service this year in Notice 2010-6 gives employers a limited-time opportunity to correct provisions in plans or agreements which are subject to Internal Revenue Code Section 409A. If those corrections are made by December 31, 2010 the correction will, in most cases, allow employers and employees to avoid penalties and unfavorable tax consequences under Section 409A of the Code.

Earlier this year, the Internal Revenue Service released Notice 2010-6, which provides an incentive to employers to review any arrangement which constitutes a “non-qualified deferred compensation plan” to confirm that it complies with Section 409A. The Notice expands and, in some cases, contradicts previous guidance and statements made by Internal Revenue Service representatives. For example:

  • The Notice contains additional guidance regarding the use of the phrase “termination of employment” in an agreement;
  • The Notice contains additional guidance regarding payments which are contingent on a release of claims or the end of a rescission period; and
  • The Notice allows “ambiguous” terms to be modified.

We believe that it is appropriate for employers who maintain non-qualified deferred compensation plans which are subject to Code Section 409A to re-examine these plans one final time before December 31, 2010.

You can see more about the Section 409A requirements HERE.