409A Relief for Nonqualified Deferred Compensation Plan Document Failures

January 20, 2010

The IRS has issued a notice providing methods by which employers who
have nonqualified deferred compensation plans may voluntarily correct
specific types of failures to comply with plan document requirements
under Code Section 409A and, in some cases, avoid or reduce the amount
includible in a plan participant's income and additional taxes under
409A.

Section 409A generally provides that, unless certain requirements
are met, amounts deferred under a nonqualified deferred compensation
plan for all taxable years are currently includible in gross income to
the extent not subject to a substantial risk of forfeiture and not
previously included in gross income. Amounts includible in income under
409A are subject to a 20% additional tax and an interest charge.

The document correction program is intended to encourage taxpayers to
review nonqualified deferred compensation plans to identify provisions
that fail to comply with the requirements of 409A and to correct those
plan provisions promptly.

Taxpayers are eligible for relief under this notice if they meet
specific requirements. The relief provisions apply only to inadvertent
and unintentional failures to comply with the document requirements
under 409A. The relief is not available if the failure is intentional
or if it is directly or indirectly related to participation in a listed
transaction under Reg. § 1.6011-4(b)(2). Additionally, the relief only
applies if the service recipient takes commercially reasonable steps to
identify and correct all nonqualified deferred compensation plans that
have a substantially similar document failure. Relief is generally not
available for a taxpayer participating in a nonqualified deferred
compensation plan if the taxpayer's or the employer's federal income
tax return is under examination with respect to nonqualified deferred
compensation for any tax year in which the document failure existed.

The notice explains correction procedures for specific failures of document compliance. Examples include:

• Correction of plan terms that are ambiguous or undefined


• Correction of plan terms that use definitions that are impermissible under 409A


• Correction of certain impermissible payment events and payment schedules


• Correction of failure to include six-month delay of payment for specified employees

The notice also provides transition relief
permitting corrections of certain documents failures without current
income inclusion or additional taxes under 409A if the document failure
is corrected by December 31, 2010, and any operational failures
resulting from the document failure are also corrected in accordance
with Notice 2008-113 by December 31, 2010.