IRS Gives Us Another (And Maybe Last) Chance To Fix
NON QUALIFIED DEFERRED COMPENSATION PLAN (NQDPC) DOCUMENT ERRORS
IRS Gives Us Another (And Maybe Last) Chance To Fix
NON QUALIFIED DEFERRED COMPENSATION PLAN (NQDPC) DOCUMENT ERRORS
Any employer plan, program, policy, practice, agreement or arrangement under which an employee obtains the right in one year, to compensation which is, or could be, paid to the employee in a later year, is considered by the IRS to be a NQDPC (non qualified deferred compensation plan) and could be subject to IRS Code Section 409A rules and regulations. The Internal Revenue Service (the “IRS”) has issued Notice 2010-6 (the “Notice”), which provides rules for fixing NQDPC plan document errors. Employers should pay attention to the Notice because of (as discussed below):
--the draconian adverse tax consequences - [Participants could be required to immediately include in current income the value of all deferred pay plus a possible 20% penalty and interest]; and
--the large number of plans that are subject to the rules of Section 409A that could contain these errors. [An employer’s NQDCPs could include “traditional” plans of deferred compensation, supplemental employee retirement plans or “SERPs”, excess benefit plans, employment agreements, retention agreements, shareholder agreements, severance pay plans, change in control agreements, deferred bonuses and equity awards (including discounted stock options)].
Transitional relief afforded by the Notice will generally allow an employer to correct plan document errors without adverse tax consequences, if the correction is made prior to the end of 2010 (and before an IRS audit and error identification starts). It is not too early for an employer to start taking advantage of the transitional relief-it may be the final time such relief is available-by gathering and reviewing its NQDCP s and start making the corrections.
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