Are you SURE your plans are 409A Compliiant?

Section 409A Revisited: Severance Plans and Other Deferred Compensation Programs - VC Experts

In Notices 2010-6 and 2010-80 (dealing with a new correction program for Section 409A ^[1]
documentary compliance defects) the Internal Revenue Service ("IRS")
announced its controversial position that a common compensatory
arrangement design under which service providers are required to sign
release agreements or other documents (such as noncompetition
agreements) to receive benefits may not be in documentary compliance
with Section 409A. Remedial action may be necessary prior to 2013 to
mitigate potential Section 409A risks with respect to arrangements that
were in effect on December 31, 2010.

If a compensatory arrangement is subject to Section 409A and is not
in documentary compliance with Section 409A, an affected service
provider may be subject to current income inclusion of such deferred
compensation along with additional federal income taxes (generally 20
percent additional taxes and an interest tax). For a more complete
summary of Section 409A see the Alert entitled "Section 409A Final Regulations and What They Mean".

Common Design Impacted

Under the 90-day payment rule of Department of Treasury Regulation
Section 1.409A-3(b) (the "90-Day Rule"), it is permissible to specify
that a payment will be made during a designated period that is
objectively determinable and nondiscretionary at the time of the
employee's separation from service, but only if the designated period is
not more than 90 days and the employee does not have the right to
designate the taxable year of payment.

Many companies that require releases structured their severance
plans and other compensatory arrangements using the 90-Day Rule. For
discussion purposes, we will refer to this design as the "Common
Design". Although this alert focuses on plans with the Common Design,
other designs may be impacted by Notices 2010-6 and 2010-80. ^[2]

Surprise Interpretation by the IRS

In Example 3 of Section VI.C of Notice 2010-6, the IRS appears to presume that (click on link above for full article)