Employee Benefits - Code Section 409A Correction Deadline Approaching: Deferred Compensation Payments Contingent on Signing Waivers, Releases and Other Agreements

Tuesday, October 2, 2012

October 2, 2012

In this issue:

Code Section 409A Correction Deadline Approaching: Deferred Compensation Payments Contingent on Signing Waivers, Releases and Other Agreements

It is common for nonqualified deferred compensation arrangements such as employment or severance agreements to condition payment of the deferred compensation on an employee signing a waiver of claims, release, non-compete or non-solicitation agreement, or similar document. The IRS takes the position that making the deferred compensation payment contingent upon an action that is controlled by the employee - the signing of another agreement - could allow the employee to control the tax year in which the payment will be made by accelerating or delaying the date on which the employee signs the agreement. This violates the Code Section 409A prohibition on an employee being able to designate the tax year in which deferred compensation will be paid.

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