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September 29, 2005

The Treasury has issued the long-awaited Sec. 409A proposed regulations. Practitioners have been waiting on these rules to fill in the gaps left by Congress in the 2004 deferred compensation legislation.

The press release for the new regulations says that the "documentary compliance" deadline has been rolled back to December 31, 2006. This apparently means that while taxpayers have to obey these rules in running their deferred compensation plans in 2006, they don't have to get their plan documents updated until the end of next year.

Section 409A is Congress's fire-into-the-crowd response to the deferred compensation abuses of the 1990s seen in Enron and other companies. Failure to follow the new rules -- timing of deferred compensation elections, hardship withdrawals, and other operational aspects of non-qualified deferred compensation -- leads to retroactive taxation of amounts deferred and a 20% penalty tax on the employee.


Press release

Proposed regulations

UPDATE: 238 pages. Ugh.

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