When is an Extension not an Extension? - An Update on 409A
Compliance Deadline
September 18, 2007
Employers have been working for many
months under a December 31, 2007 deadline for amending their
deferred compensation arrangements to comply with Section 409A of
the Internal Revenue Code and the final regulations issued in
April. Last week, the IRS announced an extension of this deadline.
While this was welcome news for affected parties and their advisors,
some may find that there is less to this extension than meets
the eye.
IRS Notice 2007-78 extended the
document amendment deadline until December 31, 2008. However, the
extension is subject to a significant pre-condition. Generally
speaking, the extension will only apply to an arrangement if the
time and form of payment for that arrangement are documented before
2008. In other words, employers will still have to make
fundamental decisions about their deferred compensation arrangements
and make sure required documentation is in place before the end of
2007.
For many who are affected by Section
409A, the one-year extension has little appeal. Faced with a
December 31, 2007 deadline for taking some of the steps necessary
for bringing arrangements into compliance with Section 409A, many
employers will want to cover all of the relevant Section 409A issues
at the same time. Otherwise, they will be undertaking one set of
Section 409A documentation projects in 2007 and another set in
2008. Some companies that take advantage of the extension will find
that they have to seek board or compensation committee approval of
Section 409A amendments twice, once before the end of 2007 and again
in 2008. Public companies that take advantage of the extension
might also have to make two SEC filings, one filing for changes in
time and form of payment adopted in 2007, and another filing for all
other changes adopted in 2008.
The extension will undoubtedly be of
great value in some circumstances. Some employers will run out of
time to bring all of their documents into compliance, and others
will face unanticipated challenges along the way. For the rest of
us, Notice 2007-78 will seem more like a “non-extension extension.”
Employers should keep in mind that all
non-grandfathered deferred compensation arrangements must be
operated in accordance with the final Section 409A regulations
beginning January 1, 2008. Notice 2007-78 did not extend this
deadline, nor did it alter the requirement to operate deferred
compensation arrangements in accordance with a reasonable, good
faith interpretation of Section 409A before 2008.
If you have any questions regarding
this alert or other Employee Benefits Law related issues, please
contact one of our
Employee Benefits attorneys.
