SilverLink - Winter 2008 - (Page 28)

Background Section 409A generally applies to compensation that was deferred or which vested on or after January 1, 2005. Amounts that were earned and vested as of December 31, 2004 generally are exempt from Section 409A, as long as there is no material modification to the plan after December 31, 2004. This means that employers may continue to administer their pre-2005 deferred compensation arrangements in accordance with the original terms, even if the terms are no longer permitted under Section 409A. The sweep of Section 409A is extremely broad, and it reaches beyond the traditional nonqualified deferred compensation plan. The final regulations include many helpful provisions that will assist with compliance and decrease the risk of inadvertent failure, a positive development given the adverse consequences of a failure to comply. Yet the rules remain lengthy (over 400 pages), and as a result are somewhat complicated. The balance of this article will identify the appropriate steps required to bring your nonqualified deferred compensation arrangements into compliance. Step 2—Determine plan provisions that must be changed. Step 3—Identify and determine if amounts earned and vested prior to December 31, 2004 should be grandfathered. Step 4—Aggregate plans subject to Section 409A into the appropriate categories and segregate grandfathered amounts. Step 5—Determine if shareholder approval is required for new plans, agreements or amendments and identify areas that require board of directors’ approval and add to the appropriate meeting agenda. Step 6—Identify or revise the list of key employees subject to the six-month distribution delay rule. Step 7—Consider securities law issues for public companies and determine if SEC reporting requirements apply. Step 1—Identify Arrangements Subject to Section 409A A crucial first step is to understand and identify all compensation arrangements—both written and verbal—subject to Section 409A. Some types of arrangements that are potentially subject to Section 409A, absent a regulatory exception, include the following: • Nonqualified deferred compensation plans, excess plans, 401(k) mirror and wrap plans, 457(f) plans, nonqualified defined benefit plans and traditional SERPs Split dollar arrangements that include an element of deferred compensation Employment agreements, change in control and severance plans or agreements Stock options, stock appreciation rights, restricted stock units and other equity awards Post-retirement reimbursement and in-kind benefit arrangements Non-U.S. benefit plans that cover U.S. employees Annual bonus and long-term incentive plans Employee stock purchase plans not covered by Section 423 of the Code Earn-outs and other arrangements entered into in connection with corporate transactions The sweep of Section 409A is extremely broad, and it reaches beyond the traditional nonqualified deferred compensation plan. Step 8—Communicate to participants the changes and actions required with participants. Step 9—Allow changes in elections under the transition rules, which generally permit changes to the time and form of payment elections during 2008 without regard to subsequent deferral or anti-acceleration rules, provided the changes do not apply to any amounts that would otherwise be payable in 2008. Step 10—Ensure that all “material terms” are included in each written plan document and complete all amendments to comply with Section 409A by December 31, 2008. Step 11—Implement procedures for operational compliance and establish systems to comply with reporting and withholding requirements. With Section 409A, the IRS and Treasury have formalized best practices for deferred compensation. The stability of this postregulation environment should have a positive impact on plan sponsors and plan participants. • • • • • • • • contact nancy Milledge at 402.96 4.5 4 38 or nMilledge@ ssgi.coM 28

Table of Contents Feed for the Digital Edition of SilverLink - Winter 2008

SilverLink - Winter 2008 Contents Risk Management: Where in the World is Human Resource Consulting? Workers’ Compensation Rate Declines Insurance Certificates Haute Retirement It All Began with a Cup of Coffee Playing Fair in the Housing Market Captives 101 Proceed with Caution Fore! (Or is it Pull? or Giddyup?) Don’t Be Fuelish Employee Benefits: Medical Trend Countdown to Compliance Private Client Services: Buy & Sell Agreements Flood Insurance Pushing Wealth to the Next Generation Client Spotlight: Travel and Transport Internal Happenings: SilverStone Group Giving Back Since 1945

SilverLink - Winter 2008

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