Relief And New Concerns: Notice 2010-6 And Correcting Section 409A Document Failures

On January 5, 2010, the Internal Revenue Service released Notice 2010-6, providing widely anticipated guidance on correcting plan document failures under section 409A. The guidance encourages employers to review their nonqualified deferred compensation plan documents to confirm they comply with section 409A or to correct them if necessary this year.

Cause for Concern
Although the Notice provides guidance, its examples also give employers cause for concern. For example:

• Termination of employment. The phrase "termination of employment" may violate section 409A if it leads to payments in situations not permitted under section 409A (for example, where an employee reduces their hours or is re-hired as an independent contractor providing significant services after termination of employment). Previously, the IRS had informally indicated that the term was acceptable. See Notice 2010-6, Section IV.B.