It has been nearly 20 years since Internal Revenue Code Section 409A transformed the rules governing nonqualified deferred compensation (NQDC). Many employers updated written plan documents by the 2008 deadline—and haven't touched them since.
It has been nearly 20 years since Internal Revenue Code Section 409A transformed the rules governing nonqualified deferred compensation (NQDC). Many employers updated written plan documents by the 2008 deadline—and haven't touched them since.
As the 20‑year mark approaches, now is the perfect moment for a quick compliance check. Over time, plan administration often drifts from what the written document actually says. And with Code Section 409A's unforgiving rules, even small mismatches can trigger significant tax implications for the participant, including immediate income inclusion, a 20% penalty tax on the amount involved, and additional penalties and interest.
Worse yet, Code Section 409A often limits an employer's ability to fix problems simply by amending the written plan document. In many cases, the only real options are correcting past errors using the IRS correction guidance and tightening operational practices going forward.
Code Section 409A also applies more broadly than many assume. Common examples include:
Two decades later, Code Section 409A is still a trap for the unwary. A quick, focused review now can help...
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