New Legislation Accelerates Taxation Of Deferred Compensation

Contents

• What Must Be Done Now to Address the New Legislation?
• How Does the New Legislation Affect Deferred Compensation?
• When Will the New Legislation Be Effective?
• What Compensation Arrangements Will Be Affected?
• What Requirements Need to Be Satisfied to Maintain Deferred Tax Treatment?

On Friday, October 22, 2004, the President signed the American Jobs Creation Act of 2004. This new legislation significantly affects the tax benefits and flexibility of nonqualified deferred compensation arrangements widely used by public and private companies to attract and reward key management personnel and directors by providing tax deferral and/or supplemental retirement benefits. The new legislation provides that amounts deferred under a plan or agreement that does not meet certain design and operational requirements will be subject to current taxation, interest, and penalties. The new legislation becomes effective January 1, 2005, but in certain