RSM Resources

The IRS announced in Notice 2006-79 that it was extending the compliance period under Code Section 409A.  The new guidance provides:

• A general extension of the deadline for amending nonqualified deferred compensation plans for compliance with Code Section 409A and the “good faith compliance” period through December 31, 2007. This includes the need to amend the plan to provide for the delay in 2005 deferral elections through March 15, 2005, as originally granted in Notice 2005-1. 
• To ease the compliance process, distribution elections under existing programs can be changed through December 31, 2007 without violating the new law as long as such changes do not result in the acceleration of a distribution into 2007 or the deferral of a distribution out of 2007. 
• A continuing problem is the coordination of distributions from qualified and nonqualified plans.  The existing transition relief allowing for this coordination has been extended to December 31, 2007.
• The deadline for canceling a discounted stock option or stock appreciation right and replacing it with an option or right that is not subject to 409A has also been extended to December 31, 2007 with a significant qualification.  This additional transition relief will not be available for options or stock appreciation rights held by insiders of public companies where the company has reported or expects to report additional financial expense due to the discount that was not previously timely reported.  Such options will need to be addressed by December 31, 2006.