Code § 409A Nonqualified Deferred Compensation Rules Revisited 

An article titled "Code § 409A Nonqualified Deferred Compensation Rules Revisited" by Charles C. Shulman, Esq., was published in the Journal of Deferred Compensation (Wolters Kluwer) in two parts in the Spring 2024 and Summer 2024 issues. I have reproduced both parts of "Code § 409A Nonqualified Deferred Compensation Rules Revisited" at https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf 

Code § 409A, enacted in 2004 imposes strict rules on nonqualified deferred compensation arrangements. The IRS issued final § 409A regulations in 2007 and further proposed § 409A regulations in 2016 and other guidance and rulings from time to time. There have been a number of cases regarding § 409A. The substantial rules and issues relating to the above are basically all discussed in the article.

Part I of the article discusses primarily which plans are subject to Code § 409A, § 409A election, distribution, and other restrictions, application to severance arrangements and employment agreements and related issues. Part II of the article discusses primarily the application of IRC § 409A to equity awards, SERPs and bonus plans, 20% tax, corrections for failures, foreign trust and related matters.

Both parts of the article can be accessed at https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf

Below is the table of contents:
Code § 409A Nonqualified Deferred Compensation Rules Revisited
https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf
Table of Contents
PART I OF ARTICLE
A.        Which Plans are Subject to § 409A
            Restrictions on Deferred Compensation
            Definition of NQDC Plan
            Definition of Plan        
            Exception for Qualified Plans
            Exception for Certain Welfare Plan Benefits
            Exception for § 457(b) Eligible Plans but Not for § 457(f) Ineligible Plans
            Exceptions for Amounts Immediately Taxable & Nontaxable Medical Arrangements
            Exception for Qualified Equity Grant Deferrals under § 83(i)
            Application to Employees and Other Service Providers
            Exception for Foreign Arrangements
            Plan Aggregation and Types of Plans
            Deferral of Compensation to Which Service Provider has a Legally Binding Right
            Not Applicable to Discretionary Plans
            2 ½-Month Short-Term Deferral Exception
            Recurring Part-Year Compensation Such as School Teachers' Compensation
            Substantial Risk of Forfeiture
            Section 457A – Taxation of Deferred Compensation of Nonqualified Entities
B.         Section 409A Election, Distribution and Other Restrictions
            Initial Election – Prior to Year Services Performed or Within 30 Days of Becoming Eligible
            13-Month Rule
            Elections for Recurring Part Year Compensation
            Performance-Based Compensation Elections Six Months Prior to End of Period
            Subsequent Elections – 12-Month Delay and Five-Year Deferral
           Separate Payments regarding Subsequent Changes in Time or Form of Payment
           Stacking          
            When Payment is made for Purposes of § 409A
            Multiple Payment Events
            Different Life Annuities Treated as Single Form of Payment
            Permissible Distribution Events
            Permissible Distribution Event – (i) Specified Date or Fixed Schedule
            Permissible Distribution Event – (ii) Separation from Service
            Permissible Distribution Event – (iii) Disability
            Permissible Distribution Event – (iv) Death
            Permissible Distribution Event – (v) Change in Control
            Permissible Distribution Event – (vi) Severe Financial Hardship
            Anti-Toggling Restriction – Single Payment Form Required for Each Payment Event…
            Designated Payment Dates Within One Calendar Year, 90 Day Payment Period, etc.
            6-Month Waiting Period after Separation from Service for Specified Employees (Top 50) of
Public Companies
            Multiple Buckets of Deferrals with Different Payout Years
            Expense Reimbursements Within the Year Following the Year of the Expense, In-Kind Benefits
            Medical Reimbursements and § 105(h)
            Tax Gross-Ups
            Delay in Payment by Employee to Comply with Other Laws
            Disputed Payments and Refusals to Pay
            Written Plan Requirement
            Plan Amendments
            Prohibition on Acceleration of Payment
            Acceleration of Vesting Permitted by Regulations
            Acceleration of Payments Permitted for Domestic Relations Order, for De Minimis Payments of
Entire Interest, for Unforeseeable Emergencies, Etc.
            Acceleration Permitted on Plan Termination following a Change in Control, in Bankruptcy or
Where All Such Plans are Terminated
            Certain Offsets Permitted
            Substitutions Replacing Arrangements Subject to § 409A and Forfeitures
            Back-to-Back Deferred Compensation Arrangements (e.g., for Hedge Fund Managers)
            Savings Clauses Disregarded
            Typical Boilerplate Provisions Regarding § 409A
C.         Application to Severance Arrangements and Employment Agreements
            Severance Plans at Discretion of Employer Excluded Since There is No Legally Binding Right
            Exception if Payout on Involuntary Termination or Within 2 ½ Months After Year of Termination
            Test for When Quit for Good Reason is Considered Involuntary Separation
            Safe Harbor Good Reason
            Severance Conditioned on Executing Release of Claims
            Treatment of Involuntary Severance Plan as a Separate Plan
            Exception for Involuntary Severance or Early Retirement Program if Separation Pay Does Not
Exceed 2 x Lesser of Pay or § 401(a)(17) Amount and Paid by Second Year Following Separation
            Exception from § 409A for Reimbursement for Expenses, In-Kind Benefits and other Fringe Benefits
            following Termination of Employment
            Limited Payment Small-Sum Cashout Exception
            Stacking of Exemptions
            Indemnification and Legal Settlements
            Consequences of Applicability of § 409A to Severance Arrangements
            Clawback Recovery Issues under Code § 409A
            Employment Agreement Provisions Regarding § 409A
PART II OF ARTICLE
D.        Options, SARs, Restricted Stock, RSUs and Partnership Interests
            Non-Applicability of § 409A to Fair-Market-Value Options and SARs Without Deferral Feature
            Service Recipient Stock or Stock of an Affiliate
            Includes Certain Prospective Employees
            Repurchases for Less than Fair Market Value
            Determination of Fair Market Value
            Dividend Equivalents for Options or SARs
            Exemption for ISOs and 423 Options
            Modification by Reduction in Exercise Price Treated as New Option
            Extension Allowed Only if Not Extended Beyond Earlier of Original Term or 10 Years from Grant
            Consequences of Stock Options or SARs Being Subject to § 409A
            Potential Solution Where Options or SARs are Subject to § 409A
            Restricted Stock Not Subject to § 409A
            RSUs Subject to § 409A if Shares Not Delivered at (or Within Short-Term Period After) Vesting
            Consequences of RSUs Being Subject to § 409A
            Partnership Interests
E.         Application to SERPs
            Changes in SERP Benefits Resulting from Changes in Qualified Plan Benefits Permissible
            Changes in 401(k) Elections Affecting SERPs
            More About Deferral Elections and SERPs
            Cannot Use Qualified Plan Forms of Distribution for SERP
            Distribution Forms Under SERP
F.         Application to Bonus Plans
            Discretionary Bonus Plans vs. Legally Binding Bonus Plans
            Short-Term Deferrals or Employment on Last Day of Year Requirement
            Bonuses Payable upon Quitting for Good Reasons
            Consequences of a Bonus Plan Becoming Subject to § 409A
G.        Immediate Taxation, Additional 20% Tax & Interest; Information Reporting
            Immediate Taxation, 20% Additional Tax, and Interest on Underpayment
            Tax on Amounts Deferred in Prior Years
            Additional State Tax
            Medicare Not Applicable to § 409A
            Amounts Includible in Income and Additional 20% Tax; Anti-Abuse Rules; Taxed Only for Years
of Failure; Opportunity to Correct Prior to Year of Vesting, Etc.
            Information Reporting and Withholding for Deferred Compensation Plans Under §409A
            Currently No Withholding Obligation for 20% Additional Tax or Premium Tax
            No Ruling Position
            Indemnification for § 409A Violations
H.        Correction For § 409A Operational and Documentary Failures
            IRS Audits
            Notice 2008-113 – Operational Failure Corrections
            Correcting Documentary Errors Prior to Year of Vesting
            Notice 2010-6 – Voluntary Corrections for § 409A Documentary Failures
I.          Grandfather Rule and Material Modifications
            General Grandfather Rule – Earned and Vested by 12/31/2004
            Lose Grandfathering if Material Modification After 10/3/2004
            Q&A 19(c) Elections and Grandfathering
            Grandfathered Discounted Stock Options and SARs and Modification
            When to Maintain Grandfathering
            Change in Payment Elections or Conditions by 12/31/2008
            Transition Relief for Linked Plan Elections by 12/31/2008
            Substitutions of Discounted Options with Non-discounted Options Prior to 2009
J.          Restrictions on Foreign or Springing Rabbi Trusts
            Offshore Rabbi Trusts
            Financial Health Triggers
            Income Inclusion for Offshore Trusts and Financial Health Triggers
            Effective Date
           Restriction on Funding if Severely Underfunded or Terminating Defined Benefit Plan

https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf