Employee Severance Agreements and Section 409A Deferred Compensation: Withstanding Heightened IRS Scrutiny

Strafford

The CLE course will guide counsel on structuring employee severance or separation agreements to comply with Section 409A's deferred compensation restrictions. The panel will discuss best practices for performing compliance self-audits and taking corrective action to remedy substantive or documentary failures.

Description

The IRS pursues Section 409A audit initiatives to determine companies' compliance with 409A's restrictions on the deferral of compensation. The agency focuses on compliance with initial deferral election requirements, subsequent deferral election requirements, and deferred compensation distributions, including the six-month delay rule.

Most severance arrangements fit within Section 409A and must be structured appropriately to avoid the adverse consequences imposed by Section 409A.

Specifically, failure to comply with 409A's strict rules can result in severe penalties, including a 20 percent excise tax and immediate taxes on vested deferred amounts. The IRS has ruled that an executive was required to recognize income under 409A--subject to the 20 percent penalty--because a plan document error was corrected in the vesting year even before vesting occurred.

Listen as our experienced panel of employee benefits attorneys explains the critical requirements of 409A and discusses the steps companies should take to ensure compliance. The panel will outline best practices for reviewing nonqualified deferred compensation plans, employment agreements, and other severance arrangements.

Outline

1. 409A issues to be considered in severance plans and agreements
2. Severance benefits subject to 409A
3. Severance benefits exempt from 409A
4. Impact of accelerating the vesting of equity awards upon the termination of employment on 409A
5. Discussion of change in control severance arrangements and "regular" severance for purposes of 409A
6. Importance of the definition of "good reason" for 409A purposes
7. Can severance benefits that are subject to 409A be conditioned on a release?

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