Treasury and IRS Release Long-Awaited Final Regulations on Deferred Compensation Under Code Section 409A

On April 10, 2007, the Treasury Department and the IRS issued final regulations relating to nonqualified deferred compensation plans under section 409A of the Internal Revenue Code. Section 409A imposes restrictions on deferral elections, distribution elections, distribution events, and acceleration of payments. Failure to comply with section 409A will result in immediate taxation of the deferred amounts, an additional penalty of 20%, and the assessment of additional interest.

The newly released final regulations incorporate and expand upon the guidance provided under proposed regulations issued in September 2005. The deadline for plan sponsors to amend plan documents to conform to the section 409A requirements and for employees to amend their payment elections (for payments not otherwise payable in 2007) remains December 31, 2007.

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