As you are aware, Section 409A of the Internal Revenue Code governs the taxation of deferred compensation broadly defined to encompass most compensation earned in one year and paid in a later year (excluding amounts under qualified plans). Rules are prescribed for, among other things, the timing of payment and the events that can trigger a change in such timing. The cost of failure to comply with Section 409A is onerous.  

Tough Penalties. If Section 409A is violated, the amount of deferred compensation (under all similar arrangements) is immediately includable in the employee's income and the employee is subject to a 20% excise tax on the amount of the deferred compensation included in income, in addition to any underpayment interest and penalties that may apply.  

Good Faith Compliance Period Expiring. For the period through December 31, 2008, the Internal Revenue Service has required only good faith compliance with the final regulations it issued under Section 409A (which were generally effective as of January 1, 2005). Effective January 1, 2009, however, all documents governing nonqualified deferred compensation ("Arrangements") must fully comply with Section 409A or its penalties will apply without regard to the actual conduct of the parties and, in many cases, without regard to correcting amendments adopted after December 31, 2008.  

Broad Scope of Covered Arrangements. The scope of Section 409A is very broad. Not only do Arrangements include the typical non-qualified plans -- deferred compensation plans, supplemental savings plans and supplemental executive retirement plans (SERPs) -- and traditional compensation plans -- like annual bonus plans, long-term incentive plans and severance pay plans -- but Section 409A can extend to other agreements that include a "deferred compensation" component -- like many employment agreements, individual severance agreements, change in control agreements, stock options, stock appreciation rights, restricted stock units and other equity awards.  

Written Arrangement Required. Prior to January 1, 2009, if the parties met the Section 409A rules in practice, good faith compliance governed even if the text of the underlining governing document had not been amended for Section 409A. To comply with Section 409A, after December 31, 2008, the text of all Arrangements must be compliant with Section 409A, which, among many other things, requires that the Arrangement be in writing by year-end and set forth all material terms, deferral conditions and payment triggering events, and all in compliance with the rules in the final regulations.  

Special Rule for Public Companies. Additional requirements apply to public companies. Payments made on account of termination from employment to specified employees of public companies may need to be subject to a six-month delay to be compliant. In most cases, specified employees are officers of the company who are among the fifty top-paid employees determined on a world-wide basis to include operating subsidiaries in most cases. Section 409A requires that Arrangements of public companies provide the method for determining specified employees and the delay of payments for such employees.