IRS issues final rules on nonqualified deferred compensation.

• Author: Laffie, Lesli S.
• Position: FROM THE IRS

The Service issued final regulations on nonqualified deferred-compensation arrangements under Sec. 409A (TD 9321, 4/10/07). These rules generally follow the proposed regulations (REG-158080-04, 10/4/05), but provide additional guidance and clarify many key issues, including:

* Liberalizing the definition of the underlying stock for stock options and stock appreciation rights (SARs) that may be permitted without triggering the application of Sec. 409A;

* Easing the ability to extend the exercise period for stock options and SARs without triggering Sec. 409A;

* Clarifying that payments can be limited based on an objective, defined formula or a fixed limit established on or before the date, time and form of payment is required under Sec. 409A;

* Adding guidance on payments under the short-term deferral exception to Sec. 409A;

* Clarifying that deferred-compensation payments can be delayed if payment would jeopardize the employer's ability to continue as a going concern;

* Providing more exceptions for severance-pay arrangements;

* Clarifying the definition of a deferred-compensation payment; and

* Providing more flexible rules on the treatment of similar deferred-compensation arrangements as one plan for purposes of the Sec. 409A penalties.

The...