Pension Protection Act restricts funding of certain nonqualified deferred compensation arrangements

In addition to its substantial overhaul of the rules regarding funding of tax-qualified defined benefit plans, the Pension Protection Act of 2006 (PPA), which became effective on August 17, 2006, imposes new restrictions on an employer's ability to fund nonqualified deferred compensation for certain executive officers. In particular, the PPA amends Code Section 409A to provide that a "covered employee" will be subject to taxation on amounts transferred to a trust (or other arrangement to be identified by the IRS) during certain "restricted periods" for the purpose of paying nonqualified deferred compensation to the covered employee.