Treasury Announces Issuance of Deferred Compensation Guidance

Under sections 885(e) and 885(f) of the legislation, Congress directed the Secretary of the Treasury to issue guidance regarding the termination and amendment of certain nonqualified deferred compensation arrangements and to define a change in ownership or control for purposes of Section 409A, within 60 days and 90 days respectively of enactment of the legislation. Notice 2005-1 addresses these guidance items. In addition, this guidance defines the arrangements that will be considered deferred compensation subject to the new rules. Finally, this guidance outlines the new reporting and employment tax obligations of employers in connection with section 409A.

IRS Chief Counsel Donald Korb said, "Given the significant changes that section 409A will require for nonqualified deferred compensation plans, we developed this guidance being mindful to avoid establishing rules that could become traps for the unwary."

Section 409A applies to amounts deferred on or after January 1, 2005, subject to several special effective date rules.

A copy of Notice 2005-1 is attached.