Practical 409A: The Impact Of Disability On Non-Qualified Deferred Compensation Under Code Section 409A

Internal Revenue Code Section 409A introduced new rules governing non-qualified retirement plans and other deferred compensation arrangements. In this series of articles, we take an in-depth look at selected issues under Section 409A.

This article examines the interrelationship between disability and the rules of Section 409A and discusses potential pitfalls that may be avoided with proper examination and drafting of a plan's disability definitions and procedures.

Internal Revenue Code Section 409A allows "disability" to be a payment trigger for deferred compensation, with disability defined under stringent standards set forth in the final regulations under Section 409A. Even if disability is not a payment trigger as such, the occurrence of a disability may impact the timing of payments made under a separation from service trigger. Additionally, a disability may affect vesting or other aspects of the operation of a deferred compensation arrangement, which may have