Internal Revenue Code §409A
2007 brought the release of final regulations under Internal Revenue Code Section 409A which was originally enacted as part of the American Jobs Creation Act in late 2004. This new code section was intended to eliminate or at the very least mitigate abuses regarding deferred compensation, specifically the vesting of benefits and the distribution of benefits.
Relative to non-profits, Employment Agreements specifically those with variable pay deferrals, post retirement medical, post-termination pay, and deferred compensation must be reviewed. In addition, stand-alone severance pay plans, deferred compensation arrangements, and mutual fund option plans must be reviewed to address compliance with or exemption from this regulation. Organizations have until the end of 2007 to amend all necessary documents to comply.
Yaffe & Company, Inc. recommends that organizations consider the development of a Board approved Variable Pay Plan document which would be drafted in accordance with IRC §409A should participants be in a position to defer awards. It would also address a wide range of areas such as the purpose of the plan, categories of eligibility, the levels of maximum opportunities, establishment of performance measures, components of performance measurement, definition of the performance period, award determinations, provisions that speak to circumstances surrounding retirement, disability, termination, etc., and legal necessities regarding participants rights, employers ability to amend or terminate the plan, severability, governing law, et al.
If you have questions with IRC §409A, Yaffe & Company, Inc. can help. Please contact us for more information.