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.
