Advisories

IRS Issues Initial Guidance Interpreting New Law Governing Nonqualified Deferred Compensation Plans

February 2005

On December 20, 2004, the IRS issued Notice 2005-1 (the Notice) which provides initial guidance interpreting Section 409A of the Internal Revenue Code, which was added by the recently enacted American Jobs Creation Act of 2004 (the "Act"). Generally, as outlined in the Notice, in order to avoid adverse tax consequences, employers must administer nonqualified deferred compensation plans in good faith operational compliance with Section 409A and the Notice effective January 1, 2005 and amend such plans to comply with Section 409A by the end of 2005.

The Notice provides initial guidance on: (1) the scope of Section 409A; (2) effective dates and transition guidance; (3) change in control events; (4) exceptions to the prohibition against acceleration of benefits; and (5) reporting requirements for deferred amounts.