ARTICLE · 01 DECEMBER 2005

What to Do Now about New Deferred Compensation Rules

DLA Piper Rudnick Gray Cary

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A new law (Internal Revenue Code Section 409A), which became effective on January 1, 2005, significantly affects the tax benefits and flexibility of nonqualified deferred compensation arrangements widely used by portfolio companies to attract and reward key management personnel.

United StatesFinance and Banking

Karl Ahlm

Originally published November 18, 2005

A new law (Internal Revenue Code Section 409A), which became effective on January 1, 2005, significantly affects the tax benefits and flexibility of nonqualified deferred compensation arrangements widely used by portfolio companies to attract and reward key management personnel.

Although Section 409A was enacted to address perceived abuses of traditional nonqualified deferred compensation plans in the public spotlight in the wake of several highly publicized corporate scandals, many other types of compensation arrangements frequently used by private equity firms and their portfolio companies fall within the definition of "deferred compensation" that is covered by Section 409A and therefore may be subject to restrictions. Examples include:

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