December 22, 2004

IRS and Treasury Issue Guidance on Deferred Comp

On Monday, the IRS and Treasury Department issued the first of what they said will be a series of “guidance” notices under Section 409A. Section 885 of the recently enacted American Jobs Creation Act of 2004 added section 409A to the Internal Revenue Code, providing new rules for nonqualified deferred compensation plans.

In Notice 2005-1, the agencies designated all of 2005 as a transition period during which companies and executives will not be penalized if their plans follow a good-faith interpretation of Section 409A. The Notice also provides guidance regarding the termination and amendment of certain nonqualified deferred compensation arrangements and defines a change in ownership or control. In addition, this guidance defines the arrangements that will be considered deferred compensation subject to the new rules – as well as outlines the new reporting and employment tax obligations of employers in connection with section 409A.

The guidance also gave relief to companies that grant stock appreciation rights to employees in ways that “do not present potential for abuse or intentional circumvention.” The NASPP was heavily involved in lobbying to spare stock SARs the death sentence.

Section 409A applies to amounts deferred on or after January 1, 2005, subject to several special effective date rules. Copies of this lengthy guidance are up in the NASPP’s Deferred Compensation Legislation portal. More to come from the NASPP on what this all means in the near future.

The Priorities of What The SEC Posts

Not sure what the purpose of this priority list really is – as most items appear to get posted pretty quickly on the SEC’s site – but the SEC maintains an explanation of why they post particular items on a quicker basis than other items.

Strangely, FAQs and Staff Guidance fall into the lowest priority bucket – below items like Appellate Briefs and the Mutual Fund Fee Calculator. Not addressed in the priority list is the upcoming comment letter/responses database (fyi, the SEC still is working out the kinks of the mechanics of how that database will work).