Severance... It´s Not What It Used To Be

Originally published in the Mintz Levin Deferred Compensation Advisory Series Issue No. 7

In enacting §409A of the Internal Revenue Code (the "Code"), Congress sought to comprehensively regulate "deferred compensation." From the start, the regulators have made clear in their public comments that the new deferred compensation rules would result in fundamental changes. The treatment of severance or "separation pay" (as the IRS has taken to calling it) under these new rules illustrates the point. While separation pay arrangements were not previously thought of as deferred compensation, the guidance issued by the IRS and the Treasury Department provide that separation pay may be regulated as deferred compensation depending on how it is structured.