Use It Or Risk Losing It: Make Your Deferral Elections Now

One important reminder from the COVID-19 pandemic in 2020 is that, in the words of one scientist, “It is difficult to make predictions, especially about the future.”  While that proverb has broader implications, it certainly describes deferred compensation in 2021. 

Midyear Deferral Elections for Bonuses

Many employers who maintain nonqualified deferred compensation plans have allowed their employees to wait to make deferral elections for their bonuses and other incentive compensation until the middle of the year.  This is allowed under an exception from the normal tax rule (Code Section 409A) that deferral elections must be made prior to the beginning of the year in which the compensation will be earned.  The exception allows deferral elections for so-called “performance-based compensation” to be made as late as six months before the end of the performance period.