On January 5, 2010, the Internal Revenue Service ("IRS") issued Notice 2010-6 (the "Notice"), which provides methods that employers can use to voluntarily correct plan document failures under Section 409A of the Internal Revenue Code of 1986, as amended. The Notice also provides clarification of the correction of certain operational failures. This article will focus on the correction of Section 409A plan document failures.
As discussed more fully below, the Notice provides long-term relief, but time is of the essence because certain document failures that are corrected before the end of 2010 generally are treated as if the failure never occurred.
The following chart highlights the type of plan document failures that can be corrected under the Notice.
If an employer corrects a plan document failure, it must take all reasonable steps to identify and correct substantially similar failures under all its non-qualified deferred compensation arrangements. The relief provided under the Notice is not available if the employee or the employer is under examination with respect to non-qualified deferred compensation for any taxable year in which the failure existed. Finally, the above chart does not address excise tax issues or timing issues.
Employers should review their non-qualified deferred compensation arrangements early in 2010 to verify that the written documents comply with Section 409A. If the plan is corrected in accordance with the Notice on or before December 31, 2010, the plan generally may be treated as having been corrected on January 1, 2009.
Susan M. Szafranski is a Partner in Day Pitney's Employee Benefits and Executive Compensation practice group. She advises clients with respect to qualified plan, welfare plan and executive compensation matters. David P. Doyle is a Partner in Day Pitney's Employee Benefits and Executive Compensation practice group. He counsels clients with respect to all aspects of employee benefits and executive compensation matters. Both attorneys are in the firm's Florham Park, NJ office.