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Deferred Compensation Plans Under Section 409A
The American Jobs Creation Act (AJCA; http://1.usa.gov/10R7wRq), signed into law on Oct. 22, 2004, created new restrictions on compensation arrangements. New Section 409A of the Internal Revenue Code (IRC) applied to compensation deferred under a non-qualified deferred compensation plan after Dec. 31, 2004. Congress directed the Internal Revenue Service (IRS or Service) to provide guidance within 60 days of enactment. The IRS issued Notice 2005-1 (http://1.usa.gov/1n0Q1Er) on Dec. 21, 2004, as revised on Jan. 6, 2005.
Section 409A applies to any arrangement that postpones payments of compensation to subsequent years. The Notice spells out what is and is not deferred compensation, Single-person Plans, “defined benefit” non-qualified plans, Supplemental Executive Retirement Plans (SERPs) and arrangements for non-employees (directors, trustees and independent contractors). See Q&A3. Previously, government and non-profit organizations were required only to follow IRC '457 with eligible and ineligible plans. Section 457(b) plans, like qualified plans, will not have to follow '409A. Ineligible plans previously governed solely under '457(f) now will have to follow '409A also.
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