The IRS changed the rules and regulations under Code Sec. 409A in 2010 (IRS Notice 2010-80). This change may require a minor revision to employment, severance and change in control plans and agreements that require an employee to execute and deliver to the employer a release of claims before receiving payments. According to Notice 2010-80, employers and employees have until December 31, 2012 to make this change.
The reason IRS is requiring this change is its paranoia over the possibility that some employers and employees will delay the commencement (and taxation) of severance payments into the following calendar year by “sitting on” the required release for a few days or a few weeks or, conversely, will accelerate payments into the current calendar year by speeding up the waiver process.
Many plans and agreements were drafted so as to be exempt from Code Sec. 409A, for example, by qualifying for the short-term deferral exception. These plans and agreements generally would not need to be amended. However, when in doubt as to whether the plan or agreement is exempt, we believe that many employers will decide simply to make the one page-one sentence amendment. Acceptable amendments include providing for payment on a fixed date or, where the release consideration period spans two calendar years, payment in the later of those two calendar years.
Employers should be able to amend most plans and agreements without any IRS filing requirements. However, some employers may need to fulfill the onerous reporting requirements of Notice 2010-80 in order to make such amendments.I wish I could say that this is the last time we will be required to make changes for Sec. 409A.
However, like most laws applicable to compensation and benefits, Congress and the IRS just cannot seem to avoid tinkering with 409A.
If you are confused by this and everything else related to 409A (in other words, you are normal), you might look into A Practical Guide to Section 409A (CCH), written by Michael Falk, my partner here at Winston & Strawn. The book does a great job of helping the reader understand what Section 409A provides, what abuses the government is really trying to prohibit, and how one can design compensation plans to comply with Section 409A.
Constitution Day (or Citizenship Day) is an federal observance that recognizes the ratification of the United States Constitution and those who have become U.S. citizens, is observed on September 17, the day the U.S. Constitutional Convention signed the Constitution in 1787. The law establishing the holiday was created in 2004. Before then, the “holiday” was known as "Citizenship Day". In addition to renaming the holiday "Constitution Day and Citizenship Day," the act mandates that all publicly funded educational institutions provide educational programming on the history of the American Constitution on that day. Fortunately, this “holiday” is not observed by granting additional time off work for federal employees.