Not All Plan Failures are Created Equal: Inventing the Code Section 409A Correction Program

Abstract

The new requirements under Code §409A have created compliance issues for executives and their corporations. All nonqualified deferred compensation plans must comply with the requirements under Code §409A(a) in form and in operation. The esoteric nature of Code §409A(a) and its regulations make administration difficult. Consequently, the U.S. Department of the Treasury and the Internal Revenue Service have decided to create a program for correcting certain nonqualified deferred compensation plan failures. Instituting a correction program for employee benefit plan failures is not a new concept. For several years, the Service has administered the Employee Plans Compliance Resolution System (EPCRS) to allow a plan qualified under Code §401(a) to correct certain failures that would otherwise cause the plan to be disqualified. While the current EPCRS program has undergone several reconstructions, the current Code §409A(a) correction program is in its infant stage. On December 20, 2007, the Treasury Department and the Service released Notice 2007-100 outlining a limited self-correction program. This article reviews the current Code §409A(a) correction program and analyzes several issues related to creating the program, including whether the Treasury Department and the Service have legal authority to create it.