On June 22, 2016, the Internal Revenue Service (IRS) issued proposed regulations to modify and clarify existing regulations under Section 409A of the Internal Revenue Code. The proposed changes were in response to practitioner comments and the IRS’s experience with Section 409A after the issuance of the final regulations in 2007. Overall, the proposed modifications are favorable to taxpayers and provide some planning opportunities. Plan sponsors have more flexibility to exempt arrangements from Section 409A and vary payment schedules under special circumstances. The IRS also made certain technical corrections to the existing regulations and warned taxpayers about certain practices that it considers to currently violate Section 409A. This article reviews the proposed changes, discusses available planning opportunities offered to employers, and addresses issues raised by the proposed regulations.
Proposed Changes to 409A Regulations Provide Greater Clarity and Planning Alternatives
By Andrew Liazos and Allison Wilkerson on December 27, 2016
Posted In Benefit Controversies, Executive Compensation
Tags: American Jobs Creation Act, beneficiary payments, bona fide claims, bona fide foreign ethics laws, conflicts of interest laws, Internal Revenue Code Section 409A, nonqualified deferred compensation, recurring part-year compensation, separation from service, service recipient stock, severance pay safe harbor, short-term deferral rule
Andrew LiazosAndrew C. Liazos is the global chair of McDermott’s Benefits & Compensation Practice Group and has practiced at McDermott for over 25 years. Andrew focuses his practice on compensation and benefit matters, including related securities, M&A, IPO, private equity, international and litigation matters. Clients range from Fortune 500 companies to compensation committees to individual executives in employment and severance negotiations. Read Andrew Liazos' full bio.
Allison WilkersonAllison Wilkerson focuses her practice on employee benefits matters. She has extensive experience handling issues pertaining to the Employee Retirement Income Security Act of 1974 (ERISA) and employee stock ownership plans (ESOPs). Read Allison Wilkerson's full bio.
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