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Abstract: 

As a result of a number of corporate governance scandals, there is heightened public sensitivity to executive compensation issues, including nonqualified deferred compensation arrangements. In response to the perceived abuse of nonqualified deferred compensation arrangements for the benefit of executives, Congress passed he American Jobs Creation Act of 2004 (the “Jobs Act”), which has a substantial impact on these arrangements. The Jobs Act added new Section 409A to the Internal Revenue Code (“Section 409A”), which codified the Internal Revenue Service’s “best practice” positions and significantly altered the rules applicable to nonqualified deferred compensation. Section 409A impacts the manner in which these arrangements are designed and administered and also covers many arrangements traditionally not considered “deferred compensation” (including equity plans and severance payment arrangements) because it broadly defines “nonqualified deferred compensation plans.” On April 10, 2007, the Treasury Department and the IRS issued the long awaited final regulations (the “Final Regulations”). Employers should review their plan documents as soon as possible to see if any amendments are required to comply with Section 409A.

Keywords: Deferred compensation

Affiliations:  1: Proskauer Rose LLP; 2: Proskauer Rose LLP.