Benefit News

Extension of 409A Compliance Deadline and Transition Rules - Additional Analysis

November 29, 2007 - On April 10, 2007, the IRS issued final regulations under section 409A, which imposes new rules on nonqualified deferred compensation arrangements. The new rules statutorily apply to amounts deferred (earned and vested) on or after January 1, 2005, and to amounts deferred before then if the arrangement is materially modified after October 3, 2004. As originally issued, the final regulations were generally applicable for taxable years beginning on or after January 1, 2008. Before the final regulations become applicable, plan sponsors are generally permitted to comply with the new rules under a reasonable, good faith compliance standard, taking into account the interim guidance issued by the IRS, including the transition rules.

The Internal Revenue Service issued Notice 2007-86, which extends the deadline for complying with the final Code section 409A regulations and the transition rules for one full year - until December 31, 2008. Notice 2007-86 revokes and supersedes the limited Notice 2007-78 "extension." The earlier Notice provided an extension only with respect to certain documentation requirements -- the transition rules were not extended and plans had to be operationally compliant with the final regulations no later than January 1, 2008. In response to various efforts by AALU and others, Notice 2007-86 effectively implements a full one-year extension of the compliance deadline and transition rules through December 31, 2008.

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