Treasury Issues Guidance Implementing New Deferred Compensation Rules

As previously reported, the American Jobs Creation Act of 2004 was enacted in October 2004. It revised U.S. tax law dramatically with respect to the structure and operation of deferred compensation plans, including the imposition of a 20% additional tax on deferred amounts that do not meet the new requirements imposed by the Act. In December, Treasury issued its first round of guidance (Notice 2005-1) in which it clarified that:

Deferral elections for 2004 and 2005 may be made as late as March 15, 2005 (if certain conditions are met); and Deferred compensation plans may be amended as late as December 31, 2005 to reflect the new law, so long as the plan is operated based on a good faith, reasonable interpretation of the statute and its purpose.

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