Now’s the time to decide whether your employer falls under Section 409A of the Internal Revenue Code. The deadline for complying is Jan. 1.

Be aware that 409A has been around a while, since 2005, but IRS had given employers a four-year transition to get up-to-speed on the reg and complying with it. Translated, that means companies could foul up but offer the excuse that they were trying their best to comply. That forgive-and-forget period officially ends on December 31.

OK, what’s 409A and what type of employers are affected by it? The law used to apply mainly to deferred-compensation plans for top execs, but that’s changed. It now covers some basic payments to people under the big wigs. For example, 409A could apply to employees who have:

• a written employment contract or agreement
• an offer letter that spells out how the individual will be paid over time?
• an agreement or arrangement to receive future benefits
• discretion as to the timing of compensation whether under a written agreement or not
• the right to terminate their employment for “good reason” and receive severance pay?
• an agreement by which they perform consulting services after the expiration of their employment
• a change of control agreement
• post-employment rights to any form of benefits or compensation
• post-employment rights to compensation depending on how their separation is classified

One good source for figuring out your company’s 409A status: “An Internal Revenue Code Section 409A Primer.” It’s a publication that was put out by the law firm of Jenner & Block when the law was enacted in ‘05.

Tags: 409A, compensation, IRS