Executive Compensation
  
NonQualified Deferred Compensation:

Nonqualified deferred compensation (NQDC) plans are playing an increasingly important role in
attracting and retaining high-level talent. These plans allow executives and other highly paid
employees to delay receiving some or all of their compensation until they leave their job or retire. The
plans typically pay interest (sometimes at guaranteed rates) or investment returns that are tax
deferred, and some plans match executive deferrals.

In 2004, the American Jobs Creation Act added Section 409A to the Internal Revenue Code,
establishing the first statutory rules specifically governing the operation of NQDC plans. While there
has been interim guidance from the Treasury Department and the IRS over the years, in April 2007
long-awaited final regulations were issued.
  
On April 10, the Treasury Department and the IRS issued final regulations on the treatment of
nonqualified deferred compensation plans and arrangements under section 409A of the Internal
Revenue Code.

Highlights of regulations and October 22, 2007, Notice 2007-86:

  • January 1, 2009 is the new effective date for compliance with final regulations.
  • Transition relief scheduled to expire on December 31, 2007, is now extended to December 31,
    2008. This supersedes prior operational and documentary compliance deadlines set by the IRS,
    including Notice 2007-78 released in September 2007.
  • Until January 1, 2009, plan sponsors must operate and administer plans consistent with the
    plan’s terms, to the extent those terms are consistent with the appropriate guidance, including
    Notice 2005-1.
  • Plan sponsors should consider operating their nonqualified deferred compensation plans
    consistent with the final regulations as a matter of best practice. Exercising a plan not
    consistent with final regulations will not be considered a “good faith” interpretation.
  
Working with your corporate counsel and skilled employment lawyers, we can help you determine is a
Non-Qualified Executive Compensation plan is right for you.