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IRS Provides Guidance on Corrections for Nonqualified Deferred Compensation Plan Compliance Failures
The Internal Revenue Service (IRS) released Notice 2010-6 providing relief and guidance on corrections of certain failures of nonqualified deferred compensation plans to comply with plan document requirements of §409A, or to limit the amount includible in income as a result of plan document failure. The notice also clarifies parts of Notice 2008-113, addressing failures of nonqualified deferred compensation plans to comply with §409A in operational failures.
Issues the notice addresses include: eligibility requirements and effect of corrections; application of §409A(a) to ambiguous plan terms; correction of impermissible definition of otherwise permissible payment events; correction of impermissible payment periods following a permissible payment event; correction of impermissible payment events and payment schedules; correction of failure to include six-month delay of payment for specified employees; correction of provisions providing for impermissible initial and subsequent deferral elections; amendment period following a service recipient's initial plan adoption; transition relief; and, information on reporting requirements. Some examples are provided.
Aspects of Notice 2008-113 addressed include: application of correction method to late payments of deferred amounts and calculation of amount to be paid, or repaid, to service providers as early or late payment corrections for deferred payments made in property, such as shares of stock.
The IRS requests comments regarding other commonly occurring document failures and methods to correct them. Comments must be submitted by April 5, 2010.
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