Preparing for the Code section 409A Compliance Deadline


 The extension for amending plans for compliance with Code section 409A and the final regulations thereunder under Notice 2007-86 does not mean that companies or individuals should wait to address these issues until later this year. During the course of an IRS examination, one company received an information and document request from the IRS agent inquiring regarding what the company was doing to comply with Code section 409A. The IRS is interested in how companies are preparing to comply, what will your or your client's answer be?

In preparing for Code section 409A compliance, it is important to study carefully the transition rules because these can be helpful tools in addressing arrangements that may not be able to continue in the same manner as they have operated in the past under Code section 409A. Each situation needs to be addressed considering the operations of the plan, the company's payroll system and the administration system for the plan. It is important to consider not only operations today in working to design the plan for compliance, but also how operations will work in the future and how to structure arrangements considering the impact of mergers and acquisitions on the non-qualified deferred compensation plans.

During the interim it is also important to review operational foot faults in light of the relief provided under Notice 2007-100. The corrections available under Notice 2007-100 should be carefully reviewed and the notice obligations under such Notice must be followed to be able to receive the benefits of the corrections provided.

During 2008, companies need to develop their own internal compliance policies and procedures for Code section 409A, including identifying all plans and arrangements potentially subject to Code section 409A, creating a procedure to identify what new agreements or arrangements need to be reviewed under Code section 409A, limiting the internal personnel who can send communications about plans or enter into agreements to avoid inadvertent documentary compliance issues, coordinating plans (particularly those that are linked to qualified plans, other non-qualified benefits or that have unique offset arrangements), collecting documentation showing compliance in operation, and determining how to deal with problems under either the transition rules, good faith compliance, one of the exemptions in the final regulations, or fixing violations under Notice 2007-100. It is also important to consider whether the issue is not addressed in the final regulations or Notice 2005-1 and can be addressed as being in "good faith compliance." It is important to remember there is no remedial amendment period for compliance with Code section 409A.

After 2008 based upon the currently existing guidance, you will not be able to fix bad documents, most bad plan designs, bad substitutions or discounted stock options that have been exercised. The IRS is asking about 409A preparations, it is time to begin work on your answer.