Deferred Compensation Guidance Under New Internal Revenue Code Section 409A
2.22.2005
On December 20, 2004, the IRS issued Notice 2005-1 – interim guidance under new Internal Revenue Code (the Code) Section 409A, which provides new rules for nonqualified deferred compensation plans. The types of plans and arrangements affected by the new legislation are broad and the penalties for noncompliance are steep. While Notice 2005-1 does not cover all the interpretive issues raised by the new statute, it does provide timely guidance and offers helpful relief. The good news is that until March 15, 2005, plans can be operated without regard to the the advance election timing rules of Section 409A as long as certain conditions are met, and in general, cleanup designed either to comply with or avoid application of Section 409A can be undertaken throughout 2005. We anticipate further guidance on Section 409A issues during the course of 2005.
