Section 409A of the Internal Revenue Code governs nonqualified deferred compensation arrangements, including the timing and form of deferrals and payment of such amounts. Section 409A was effective as of January 1, 2005, and all arrangements subject to Section 409A have been required to be operated in compliance with Section 409A and related transitional guidance since that date. The final regulations, issued in April 2007, included a requirement that all plan documents comply with Section 409A by December 31, 2007. In response to countless comments from practitioners expressing concern about meeting this deadline, the IRS has provided limited relief in Notice 2007-78, which allows only an extension to make amendments to conform to Section 409A until December 31, 2008. However, Notice 2007-78 does not extend the deadline for bringing elections regarding time and form of payment into compliance with Section 409A, nor does it extend most of the transitional relief available in 2007, including the relief available with respect to revising existing elections regarding time and form of payment for amounts payable after December 31, 2007. A plan must designate in writing, before January 1, 2008, a compliant time and form of payment of such deferred compensation.
The Notice is helpful, but limited because important decisions will still need to be made and documented by December 31, 2007, to comply with Section 409A. The Notice will be of assistance to companies whose corporate procedure for adopting plan amendments may extend into 2008, companies with employment agreements that may be subject to Section 409A, and companies that need additional time to remove certain noncompliant plan provisions as long as the plan is operated in compliance with Section 409A.
The IRS also announced that it intends to develop a limited voluntary compliance procedure for correcting certain operational defects; additional guidance on this topic is expected.