Section 409A After the Final Regulations: Amending Nonqualified Deferred Compensation Plans

Between now and the end of 2007, most employers and their advisers will be working to revise their executive compensation programs. This is due primarily to the American Jobs Creation Act, which was enacted in 2004, but that is now having a significant impact on the executive compensation plans of most employers. The new law, also referred to as Section 409A of the Internal Revenue Code, primarily affects nonqualified deferred compensation plans, which are plans many employers maintain to provide benefits to executives and other key employees in excess of the benefits they can earn under qualified plans, such as 401(k) plans and qualified pension plans. However, because of the broad way in which the law defines deferred compensation, the new law also affects stock options, stock appreciation rights, severance pay and many other benefits executives have come to expect as part of their compensation packages.