On October 22, 2007 the IRS released the text of Notice 2007-86, which will be dated November 13, 2007. The new notice provides significant relief for nonqualified deferred compensation plans and arrangements under Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A). Highlights of Notice 2007-86 include:
- Plan amendments for Section 409A compliance are not required to be completed until December 31, 2008.
- The transitional relief scheduled to expire on December 31, 2007 is now generally extended to December 31, 2008.
- Operational compliance with the final regulations (not the proposed regulations) under Section 409A will be treated as reasonable, good faith compliance during 2008.
- Nonqualified deferred compensation plans that are linked to tax-qualified retirement plans do not have to be "de-linked" until December 31, 2008.
- Certain substitutions of non-discounted stock options and stock appreciation rights for unexercised discounted stock options and stock appreciation rights will be permitted through 2008.
- New payment elections with respect to the time and form of payment can continue to be made through December 31, 2008 so long as such election does not accelerate the payment of amounts into 2008 that were not otherwise payable in 2008 or defer the payment of amounts beyond 2008 that were otherwise payable in 2008.
- The clarifications regarding employment contracts and cash-outs provided by Notice 2007-78 are not superseded and continue to apply.
In an unusual format, Notice 2007-86 does not merely supersede portions of previous guidance in Notices 2007-78 and 2006-79, but instead actually rewrites several portions of Notice 2006-79 and the final regulations.
Notice 2007-86 provides welcome relief for employers who were struggling to meet the prior documentary compliance deadlines. However, it should be noted that operational compliance with the Section 409A final regulations, including the six-month delay rule applicable to specified employees of publicly traded companies, is required.