As our corporate department recently reported, the U.S. Treasury has issued final regulations under Internal Revenue Code Section 409A. The following includes a summary of actions that employers should take by December 31, 2007 to comply with the final regulations and to guard against taxation of nonqualified deferred compensation and a 20 percent excise tax:

  1. Review all types of compensatory arrangements to determine whether they are subject to Section 409A. Arrangements that create a legally binding right to compensation in one year that is payable in a later year are typically subject to Section 409A.
  2. Amend plan documents in writing to comply with Section 409A.
  3. Determine which nonqualified plan deferrals that are linked to qualified plans comply with Section 409A and which ones do not. The arrangements that are not in compliance with Section 409A should be unlinked from the qualified plans or amended.
  4. Consider amending plan documents to allow participants to change the time and form of payment of amounts subject to Section 409A.
  5. Consider whether stock rights that are not exempt from Section 409A should be replaced with stock rights that are exempt.
  6. Update severance and employment arrangements in light of the final regulations.

Click here for the full text of the Executive Compensation Law Alert.