The Final Word Under the New Section 409A Regulations: 2007 Action Items and Diagnostic Guide
By Stephen Harris, Eric Keller, Ethan Lipsig and Mark Poerio
On April 10, 2007, the IRS issued its much-anticipated final Section 409A regulations (the “final regulations”). They take effect as of January 1, 2008, and allow taxpayers to rely on them retroactively. This 2008 effective date makes December 31, 2007, a critical deadline by which to bring plans, arrangements, awards and individual agreements (collectively, “plans”) into documentary compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “code”). The end of 2007 is also the deadline by which:
• individuals may make special transition period payment elections; and
• certain equity-based awards that violate Section 409A, notably stock options and stock appreciation rights (SARs) that have an exercise price that is below market on the grant date, may be amended or restructured.
It is timely now for public and private employers to turn their attention to a compliance review of all of their arrangements that Section 409A may govern, including bonus plans, severance arrangements, and stock option and other stock-based awards.