IRS Extends Compliance Deadline for Deferred Compensation Plans
October 17, 2006
The IRS has given employers that maintain deferred compensation plans an additional 12 months to bring plans into compliance with new rules. Notice 2006-79, issued on October 4, 2006, provides employers with additional time to comply, and clarifies certain aspects of the new rules.
The IRS and Treasury Department are in the process of finalizing proposed rules that were published in October 2005. The proposed regulations included an effective date of January 1, 2007. While the IRS anticipates issuing final rules by the end of this year, the regulated community has voiced concern that there will be insufficient time between publication of the final rules and the proposed effective date for employers to familiarize themselves with the regulations and come into compliance. According to Notice 2006-79, the final rules will not be effective until January 1, 2008.
Added to the Internal Revenue Code by the American Jobs Creation Act of 2004, section 409A sets forth that unless specific requirements are met, amounts deferred under a nonqualified deferred compensation plan are to be included in taxable income currently, to the extent that they are not subject to a substantial risk of forfeiture.
The notice also:
- generally extends through 2007 the transition relief outlined in the 2006 proposed regulations;
- provides addition transition relief for certain payment elections in linked plans and certain collective bargaining arrangements; and
- extends the amendment date for certain plans that took advantage of transition relief provided for in 2005.
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