409A Deferred Compensation Requirements Postponed Until Next Year

Unable to come up with final regulations in time for companies to implement changes by the end 2006, the IRS has postponed the effective date of new deferred compensation requirements under Internal Revenue Code Section 409A until the end of 2007. Final regulations are expected by the end of 2006. Deferred compensation plans, however, must comply in good faith with the statute. Formal amendments must be made by December 31, 2007. Participants can make new payment elections through that time. Participants who previously made an election can still change it. Companies with discounted options and stock appreciation rights can retroactively amend their grant price to fair market value until the end of 2007 except for public companies required to restate their earnings because of backdated options for Section 16 insiders. The new rules are contained in IRS Notice 2006-79.