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The next round of Section 409A guidance will be in the form of approximately 125 pages of proposed and temporary regulations. That regulatory package is currently (and has been for some time) in the approval process at the Internal Revenue Service and the Treasury Department. The anticipated due date is now sometime during the latter half of the month of September.
The regulations are now expected to include some deferral of the deadline for bringing existing arrangements into compliance with Section 409A beyond the current December 31, 2005. This first round of regulations is expected to focus on nonqualified plan drafting issues and not to address application of funding and penalty provisions which are not immediately necessary to restructuring plans. The proposed regulations are expected to contain some guidance (probably in the preamble) concerning the application of Section 409A to split-dollar life insurance arrangements. The regulations are likely to take the position that at least some types of grandfathered split-dollar arrangements (grandfathered under split dollar regulations issued September 17, 2003) may constitute deferred compensation and may be subject to the requirements of Section 409A.
Even though the regulations may delay the deadline for bringing deferred compensation arrangements into compliance with the new rules, the new rules were effective January 1, 2005, and good faith compliance with the new rules is required. Thus, it is important that employers review any compensation arrangement that includes any type of deferral feature in time to allow end of year elections and contributions to conform to the new requirements.
We will continue to monitor and keep you informed of further developments regarding this legislation.
This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations. If you have further questions, please contact Marla Aspinwall.
Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.