If you wait until year end to think about these significant IRS deadlines, it may be too late! Plans requiring amendment (including virtually any employment agreement or executive compensation arrangement) must be identified and reviewed, amendments drafted, vendors identified (and new contracts with them signed), and board approvals obtained, all before year-end. We highly recommend you begin this important work now, so that all plans requiring compliance amendments are identified by August and the work can commence to meet the year end deadlines summarized below.
December 31, 2008 Amendments Deadline
409A Compliance. A broad new federal tax provision (IRC § 409A) could result in employees and executives being subject to an extra 20% excise tax on their compensation if steps are not taken to amend any affected compensation arrangements by year end. The sweep of this new tax provision is extremely broad, potentially affecting employment agreements, bonus arrangements, severance or wage continuation provisions, equity compensation such as stock options or stock bonus awards, supplemental executive retirement arrangements or promises, health care continuation provisions other than required COBRA continuation coverage, and any other type of payment that could be considered compensation attributable in whole or in part to prior years’ service. The new 409A regulations issued by the IRS last fall are extremely voluminous and complicated. Therefore, the time to start reviewing any potentially affected arrangements or agreements to ensure year end compliance is now.
December 31, 2008 Amendments Deadline
403(b) Compliance. All 403(b) tax-deferred annuity or custodial account arrangements must be in compliance with comprehensive new federal IRS regulations by year end. This will require public schools and other government or 501(c)(3) employers offering a 403(b) arrangement to have a new 403(b) plan document in place by year end, as well as updated annuity contracts, if necessary, and appropriate procedures and controls for monitoring and ensuring compliance with 403(b) requirements and obtaining necessary information and cooperation from 403(b) vendors.
This Amendment Deadline May NOT Be Year-End for Some Employers
415 Final Regulations. Due to an anomaly in the final regulations language, the amendment period to reflect the Code § 415 final regulations may not extend until the end of 2008 for certain employers. The remedial amendment period is keyed in part to the plan’s limitation year, in part to the plan year, and in part to the employer’s tax year. If the limitation year is not consistent with either the plan year or the employer’s tax year, the amendment period may cut off before the end of 2008. Any employers who need to comply with the 415 final regulations and whose limitation year does not correspond to either the plan year or the employer’s tax year should review these requirements to ascertain when the amendment period ends for them.
About the Author: Melody A. Simpson, special counsel in the Charleston office, is a member of the Bowles Rice Employee Benefits and Executive Compensation Group.
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