Reimbursements and In-Kind Benefits

[Guest basilb]

In my opinion, the reimbursement/in-kind benefits provisions (e.g. 1.409A-3(i)(1)(iv)) are the nuttiest 409A rules.

Here is the current issue: An employment agreement, like most that I have reviewed, does not have any of the 409A reimbursement/in-kind benefits language for items like business expenses, auto allowance, country club membership dues.

Under Notice 2010-6, reimbursement/in-kind benefits provisions can be corrected by adding the 409A-required language, so long as the correction is made before the date that the employee would have become eligible for a reimbursement or in-kind benefits under the agreement (a requirement which, for all practical purposes, in my mind renders the correction fairly useless). Regardless - in the current transitional window under 2010-6, we are permitted to correct the failures addressed in the notice and it will be as though the document were in compliance on 1/1/2009. However, we must correct the failure "in accordance with the notice".

Does that mean that existing reimbursement/in-kind benefits arrangements cannot be corrected in the transitional window, assuming that reimbursements/in-kind benefits have been provided in the meantime? Or can we go ahead and correct now, no harm-no foul, so long as payments were made properly in the meantime though the document wasn't compliant?

I have been correcting anyway, figuring better now than never, but I'm not sure it's really fixing the document problem retroactively.