IRS Issues Final Regulations On Nonqualified Deferred Compensation - Dec. 31 Deadline For Amendments

On April 10, the IRS issued final regulations under Section 409A of the Internal Revenue Code regarding the tax treatment of nonqualified deferred compensation. The final regulations preserve most of the guidance set forth in proposed regulations issued in 2005 and in subsequent notices, including the requirement to amend plans to bring them into documentary compliance by December 31, 2007. Compliance with the final regulations is required on and after January 1, 2008. In the meantime, plans must continue to be operated in "good-faith" compliance, and employers must be able to substantiate their compliance with the rules in place during the transition period.

In general, Section 409A permits the deferral of income on benefits provided under a nonqualified deferred compensation plan only if the plan imposes certain restrictions on the distribution of benefits and the employee makes a timely election on the form and time of payment. In addition to traditional deferred compensation