Deadline for 409A Compliance Extended, Treasury, IRS Reports
WASHINGTON -- The deadline to bring documents into compliance with the final nonqualified deferred compensation regulations under section 409A of the Internal Revenue Code has been extended to Dec. 31, 2008, the Treasury Department and Internal Revenue Service announced on Sept. 10.
In April, Treasury and IRS issued final 409A regulations, which provided guidance regarding the requirements for deferral elections and payment timing under section 409A. Affected plans and arrangements were required to comply with the final regulations by Dec. 31, 2007. IRS Notice 2007-78 extends the document compliance deadline for one year and provides additional limited transition relief, but does not extend the Jan. 1, 2008 effective date of the final regulations.
Notice 2007-78 also announces that Treasury and the IRS anticipate issuing guidance containing a limited voluntary compliance program that will permit corrections of certain unintentional operational violations of section 409A.
According to CUNA, for the most part, the final regulations retain the substance and format of the proposed regulations. The final rules clarify and provide more detail on certain provisions, including: clarification of the term "substantial risk of forfeiture"; definition of "separation from service"; expanded exceptions from 409A for certain separation payments; rules governing nonqualified plans that are linked to qualified plans; and written plan document requirements.
"The 409A rules govern certain nonqualified deferred compensation plans under 457(f) of the IRS Code. This is a positive development from the IRS," said Mary Dunn, senior vice president and deputy general counsel of regulatory advocacy at CUNA.
All plans must be brought into compliance with the final regulations by Jan. 1, 2008. Plans do not have to be retroactively amended for periods prior to the effective date, however, employers must be able to demonstrate operational compliance with Section 409A during the transition period, according to CUNA. Noncompliance results in inclusion in income for all amounts deferred under the plan by a participant, interest at the underpayment rate plus one percentage point and a 20% penalty.
The 409A final regulations were in response to legislation enacted by Congress in 2004 to address concerns involving reported abuses of nonqualified deferred compensation plans. Section 409A was added to the Internal Revenue Code by the American Jobs Creation Act of 2004.