Compliance October 21, 2010

NQDC Plan Sponsors Reminded of 409A Compliance Deadline

Employers with a non-qualified deferred compensation plan (NQDCP) that has not been amended to comply with Section 409A of the tax code have until year end to take advantage of a special offer to bring the plan into line.
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According to a new client advisory from attorney Adam B. Cantor of the national law firm Fox Rothschild, a special Internal Revenue Service (IRS) compliance program allows NQDCPs in existence before January 1, 2009 to amend their plan by December 31, 2010, with the changes to take effect as of January 1, 2009, as long as sponsors satisfy certain IRS tax return reporting requirements and correct any operational failures due to this retroactive correction.

Cantor said that plans out of compliance which are not corrected by the year-end deadline will find plan participants being taxed once the deferred amount vests and the IRS imposes a 20% excise tax and interest on the deferred amount starting from the time of initial deferral or vesting, whichever is later.

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