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View Coronavirus (COVID-19) News and Resources

January 23, 2021

News

All News > 409A Plans

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IRS Regulatory Agenda, Fall 2020 (Employee Benefit Items)
Internal Revenue Service [IRS], U.S. Department of the Treasury Link to more items from this source
[Official Guidance]
Dec. 18, 2020

Numerous employee benefits items, some of which are:

Proposed Rules

  • Notice to Participants of Consequences of Failing to Defer Receipt of Qualified Retirement Plan Distributions; Expansions of Applicable Election Period and Period for Notices
  • Definition of Church Plan
  • Application of Nondiscrimination Requirements, Backloading Limitations, Certain Plan Termination Rules, Benefit Limitations, and Top Heavy Rules to Statutory Hybrid Plans
  • MEPs and the Unified Plan Rule
  • Guidance on the Timing of the Use or Allocation of Forfeitures in Qualified Retirement Plans
  • Voluntary Employees' Beneficiary Association (VEBA) Regulations
  • Income Tax Withholding on Certain Periodic Retirement and Annuity Payments Under Section 3405(a)
  • SECURE Act Modifications to Certain Rules Governing 401(k) Plans
  • Guidance on 401(a)(9) Required Minimum Distributions

Final Rules

  • Definition of Dependent Under Section 152
  • Reporting and Notice Requirements for Deferred Vested Benefits Under Section 6057
  • Application of Normal Retirement Age Regulations to Governmental Plans
  • Nondiscrimination Relief for Closed Defined Benefit Plans
  • Withholding on Certain Retirement Plan Distributions Under Section 3405(a) and (b)
  • Guidance Under Section 162(m)
  • MEPs and the Unified Plan Rule
  • Contribution Limits Applicable to ABLE Accounts
  • Application of the Employer Shared Responsibility & Certain Nondiscrimination Rules to HRAs and Other Account-Based Group Health Plans Integrated With Individual Health Insurance Coverage or Medicare

Tags: 409A Plans  •  Executive comp  •  Health Plan Administration  •  Health Plan Design  •  Retirement Plan Administration  •  Retirement Plan Design

Bankrupt Company’s Deferred Compensation Plan Funded by a Rabbi Trust – What Could Go Right? Hint: It’s Not 409A
Winston & Strawn LLP Link to more items from this source
Dec. 16, 2020

"The participants argued that the Plans' termination due to a change of control effectively divested the company of any legal or equitable interest in the trust assets. The participants also argued that the rabbi trust assets should have been distributed to them on or before March 1, 2020, in accordance with regulations under Sec. 409A, well before the bankruptcy petition was filed.... The bankruptcy court judge held that the company supported its contention that it was insolvent as of March 1, 2020, and was therefore not required to make the payments." [In re RTI Holding Company LLC, No. 20-12456 (Del. Bankr. Nov. 19, 2020)]

Tags: 409A Plans  •  Nonqualified Plans

Last Chance to Review Your Nonqualified Deferred Compensation Plans
Buchanan Ingersoll & Rooney PC Link to more items from this source
[Guidance Overview]
Dec. 9, 2020

"As a result of amendments made to Section 162(m) of the Internal Revenue Code by the Tax Cuts and Jobs Act (TCJA), certain mandatory delayed payment provisions appearing in many nonqualified deferred compensation plans (NQDC) maintained by publicly traded corporations could create a costly payment trap for employers.... In order to take advantage of this relief, however, affected employers must amend their NQDC Plans by December 31, 2020 to remove the mandatory delayed payment provisions."

Tags: 409A Plans  •  Nonqualified Plans

Public Companies May Need to Amend Nonqualified and Incentive Compensation Plans by Dec. 31, 2020
Porter Wright Morris & Arthur LLP Link to more items from this source
[Guidance Overview]
Dec. 7, 2020

"This amendment most likely is required for employers that mandated deferrals of amounts that exceeded the limit under IRC Section 162(m) but not those whose plans permitted but did not require deferrals of such amounts. Nevertheless, an employer that actually exercised such discretion with respect to non-grandfathered amounts may need to amend such arrangements as well."

Tags: 409A Plans  •  Executive comp  •  Nonqualified Plans

Section 409A Meets 162(m): Some Deferred Compensation Plans and Agreements May Need Amendments by December 31
Winston & Strawn LLP Link to more items from this source
[Guidance Overview]
Dec. 3, 2020

"The proposed regulations provide that if a plan or agreement is amended to remove the provision requiring the company to delay a payment if the company reasonably anticipates at the time of the scheduled payment that the deduction would not be permitted under Section 162(m), then the amendment will not [1] result in an impermissible acceleration of payment under Section 409A, or [2] be considered a material modification for purposes of the grandfather rule under the amended Section 162(m).... The plan amendment must be made no later than December 31, 2020."

Tags: 409A Plans  •  Nonqualified Plans

Impact of the SECURE Act 2019 on NQDC Plans and Retirement Distribution Elections (PDF)
Fulcrum Partners LLC Link to more items from this source
Nov. 16, 2020

"Executives may find that pushing out access to NQDC plan money by five years is a more beneficial and strategic option than receiving that money as a lump sum payout at a time when the executive is in the highest tax bracket.... Strategically re-deferring money, creating multiple buckets with differing payout schedules or through the election of a different pay out schedule for each year can be a tax-favorable decision."

Tags: 409A Plans  •  Nonqualified Plans  •  Retirement Plan Design

Avoiding 409A Pitfalls While in Financial Distress
Proskauer Link to more items from this source
Nov. 5, 2020

"[E]mployers may be concerned about their employees' ability to access their deferred compensation benefits and may want to terminate their deferred compensation arrangements and accelerate payments. Companies that are financially troubled or otherwise potentially headed towards bankruptcy may want to set aside funds to ensure their employees get paid their deferred compensation. Each of these situations involves significant 409A issues that should be closely evaluated."

Tags: 409A Plans  •  Nonqualified Plans

Why Do We Have to Worry About 409A? Our Incentive Plan Always Pays Out on Vesting
Miller & Chevalier Link to more items from this source
Oct. 2, 2020

"The award will be considered vested at the time the retirement eligible executive could voluntarily walk out the door and still receive payment. Thus, if an award is granted to an executive who is 'retirement eligible' at the time of grant, the award would be vested at that time.... Unless the award is paid out within two-and-a-half months following the year the executive becomes retirement eligible, the award will provide deferred compensation!"

Tags: 409A Plans

Severance Benefits and the Short Term Deferral Rule (PDF)
Bodman PLC Link to more items from this source
Oct. 1, 2020

"[A] severance arrangement will be subject to Code Section 409A, unless one of the limited exceptions applies or the arrangement satisfies an exemption.... The short term deferral rule only has two conditions, both of which must be satisfied in order for the rule to apply. The first condition is related to the timing of the severance payment. The second condition is related to whether the employee has a vested interest in the severance payment."

Tags: 409A Plans  •  Severance Pay

Editor's Pick Possible Options for Participant Relief Under Section 409A Plans in the Time of Coronavirus
Groom Law Group Link to more items from this source
Sept. 23, 2020

"In general, Code section 409A provides participants with a limited ability to access deferred compensation in the event of an unforeseeable emergency, and also offers employers (but not participants) some discretion to cancel future deferral elections (but not distribute benefits) in certain circumstances. However, it is important that employers understand the limits of these rules before taking action."

Tags: 409A Plans  •  Coronavirus (COVID-19)  •  Nonqualified Plans

Executive Compensation Issues Emerging from the COVID-19 Crisis
Milliman and White & Case, via Benefits Law Journal Link to more items from this source
Aug. 3, 2020

19 pages. "[T]he recent passage of the [CARES Act] as well as general liquidity and business continuity concerns due to the financial crisis have created circumstances calling for reductions in executive compensation. Employers and employees, however, must take care in the manner in which such reductions are implemented in order to remain in compliance with Internal Revenue Code Section 409A. In addition to analyzing these topics, this column also reviews other executive compensation issues that should be examined during these turbulent times."

Tags: 409A Plans  •  CARES Act  •  Coronavirus (COVID-19)  •  Executive comp

COVID-19 Considerations for Nonqualified DC Plans
Hall Benefits Law Link to more items from this source
July 31, 2020

"Employers should not assume that the tax-qualified rules under the [CARES Act] automatically apply to nonqualified plans, including the power to cease deferrals.... [A] furlough would typically not be considered a separation of service that would trigger a nonqualified plan payment ... 409A does provide some flexibility to temporarily delay payment with one important caveat: A delay is only possible if making the payment as specified in the plan would jeopardize the ability of the employer to continue as a going concern."

Tags: 409A Plans  •  Nonqualified Plans

Sponsors and Participants Must Follow 409A True to Form (PDF)
Milliman and White & Case, via Benefits Law Journal Link to more items from this source
July 8, 2020

11 pages. "[T]he rules with respect to changing [benefit commencement date (BCD)] and changing the form of payment ... share a common purpose: preventing a participant from having the type of excessive control over the timing of payment that Code Section 409A was enacted to eliminate while, at the same time, containing certain exceptions that provide participants with some degree of flexibility in certain circumstances. This column examines how NDCP sponsors can navigate these rules to ensure that their NDCP comply with Code Section 409A with respect to changes in form of payment elections."

Tags: 409A Plans  •  Nonqualified Plans

IRS Provides Additional Guidance on COVID-19 Cancellation of Compensation Deferral Elections
Winston & Strawn LLP Link to more items from this source
[Guidance Overview]
June 26, 2020

"[Notice 2020-50] clarifies that if a participant receives a distribution from an eligible retirement plan that constitutes 'a coronavirus-related distribution,' that distribution will be considered a hardship distribution pursuant to Section 409A.... Therefore, a participant who elects and receives a coronavirus-related distribution can cancel his or her a non-qualified plan deferral election at the same time."

Tags: 409A Plans  •  CARES Act  •  Coronavirus (COVID-19)

IRS Issues Guidance on CARES Act Retirement Plan Relief
Smith, Gambrell & Russell, LLP Link to more items from this source
[Guidance Overview]
June 25, 2020

"[Notice 2020-50] confirms that most other distributions made during 2020, and not merely distributions taken pursuant to a special in-service distribution right added under the CARES Act, will qualify as coronavirus-related distributions. However, not every coronavirus-related distribution will be eligible for all of the favorable tax treatment under the CARES Act."

Tags: 401(k) Plans  •  409A Plans  •  CARES Act  •  Coronavirus (COVID-19)  •  Retirement Plan Administration

IRS Eases COVID Distribution Rules: More Individuals Can Withdraw or Borrow from Retirement Accounts
Nelson Mullins Link to more items from this source
[Guidance Overview]
June 24, 2020

"[T]he expanded rule effectively looks at the full household for COVID-19 effects ... [Notice 2020-50] provides that plan loan offsets and reductions which are taxable distributions can also qualify as CRDs if they occur during 2020.... [T]he Notice allows a 'qualified individual' to cancel his or her deferral election under a nonqualified deferred compensation plan."

Tags: 409A Plans  •  CARES Act  •  Coronavirus (COVID-19)  •  Nonqualified Plans  •  Retirement Plan Administration  •  Retirement Plan Design

The HCE Benefits Gap: How It Happens, How to Fix It (PDF)
Fulcrum Partners LLC Link to more items from this source
May 6, 2020

"Companies generally spend 20% more, as a percentage of salary, on benefits for the core population than they spend on benefits for the executive group.... Strategically designed disability income restoration plans and 401(k) restoration plans (nonqualified deferred compensation plans under IRS Section 409A) offer a viable solution for employers and highly compensated key employees."

Tags: 401(k) Plans  •  409A Plans

Considerations for Nonqualified Deferred Compensation Plans Amid the Current Crisis (PDF)
Cowden Associates, Inc. Link to more items from this source
Apr. 24, 2020

"Under the current situation, many employers have decided to reduce pay temporarily, accompanied with the promise from the employer to make up for the compensation reduction later. This type of agreement might actually be a nonqualified deferred compensation plan subject to all of the 409A requirements -- including penalties for noncompliance."

Tags: 409A Plans  •  Coronavirus (COVID-19)

Editor's Pick COVID-19 and Employee Benefit Plans: An Action List for Employers (PDF)
Boutwell Fay LLP Link to more items from this source
[Guidance Overview]
Apr. 16, 2020

"[The authors] have created a checklist of issues to consider and possible actions to take. [which] is current as of April 10, 2020 ... [It includes] questions ... as well as ... items that may need prompt action by employers with respect to their employee benefit plans."

Tags: 409A Plans  •  CARES Act  •  Coronavirus (COVID-19)  •  FFCRA  •  Health Plan Administration  •  Health Plan Design  •  Retirement Plan Administration  •  Retirement Plan Design

Editor's Pick COVID-19 Executive Compensation Q&As: Incentive Plans and Nonqualified Deferred Compensation
Pepper Hamilton LLP Link to more items from this source
Apr. 14, 2020

"[1] Can or should companies make adjustments to their annual and long-term incentive plans in light of COVID-19 business impacts? ... [2] We were about to pay our 2019 annual bonuses but want to indefinitely delay payment given financial uncertainty caused by COVID-19. Will that delay cause any legal issues? ... [3] The COVID-19 crisis has caused our stock price to drop dramatically. What impacts could this have on our equity compensation program? ... [4] Can we permit participants to cancel deferral elections and/or receive distributions from our nonqualified deferred compensation plans?"

Tags: 409A Plans  •  Coronavirus (COVID-19)

Nonqualified Deferred Compensation Plans: Unforeseeable Emergency Withdrawals, Deferral Election Cancellations During COVID-19
Morgan Lewis Link to more items from this source
Apr. 13, 2020

"Section 409A does allow for the cancellation of a deferral election and/or acceleration of payments if an employee experiences an 'unforeseeable emergency' within the meaning of Section 409A.... [An] employer may allow a limited payment of deferred compensation to an employee if the employee experiences an unforeseeable emergency.... [A] plan may provide for the payment of deferred compensation upon certain types of unforeseeable emergencies without providing for payment upon all types of unforeseeable emergencies."

Tags: 409A Plans  •  Coronavirus (COVID-19)

Editor's Pick Love and Section 409A in the Time of COVID-19
Winston & Strawn LLP Link to more items from this source
Mar. 26, 2020

"Section 409A and non-qualified plan issues ... created by COVID-19 [include] ... [1] Cancellation of non-qualified plan deferrals ... [2] Electing an unscheduled distribution.... [3] Paying annual bonuses by March 15.... [4] Scheduled distributions from a non-qualified plan.... [5] Setting performance goals."

Tags: 409A Plans  •  Coronavirus (COVID-19)


January 23, 2021

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