The IRS has released Notice 2007-78, which generally extends for one more year—until Dec. 31, 2008— the deadline to adopt or amend plan documents in compliance with the final IRC Section 409A regulations.
The extension is subject to certain limited compliance requirements that must be completed by Dec. 31, 2007. In particular, a Section 409A-compliant time and form of payment must be designated in writing, whether in the Section 409A arrangement itself or in a separate document, no later than Dec. 31, 2007.
Payment events that are not specified in writing by Dec. 31, 2007 will be subject to the anti-acceleration and subsequent deferral election provision of Section 409A. The six-month delay rule for specified employees need not be included in a current writing, although operative compliance is required. Finally, safe harbor rules in the final 409A regulations that allow certain separation payments to be exempt from 409A, still need to be reflected in the applicable employment contract or severance plan by Dec. 31, 2007. Despite this transition relief, the notice does not extend the final regulations’ Jan. 1, 2008 effective date. Therefore, after Dec. 31, 2007, taxpayers may not rely on the proposed regulations or the prior transition relief. Deferred compensation plans and agreements must operate in strict compliance, with the final 409A regulations beginning Dec. 1, 2008, even though the plan documents may be amended later.
The Internal Revenue Service also indicated that future guidance will be issued to establish a limited voluntary compliance program for the correction of unintentional operational failures.