Current developments in employee benefits and pensions (Part I).

EXECUTIVE SUMMARY

* Notice 2007-100 provides relief for limited unintentional Sec. 409A operational failures, including early payments and failed deferrals, failures to delay distribution of deferred compensation, and excess deferrals.

The IRS issued proposed regulations addressing issues related to the interplay of the qualified plan qualification rules in Sec. 401 and the health care related exclusions from income in Secs. 104-106.

* The IRS provided HSA guidance in final regulations on the comparable contribution requirements for employee HSAs and two notices that addressed the full contribution rule for HSAs and a variety of other HSA issues.

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This two-part article covers significant developments in late 2007 and 2008 in employee benefits, including executive compensation, welfare benefits, and qualified plans. Part I, below, focuses on new guidance regarding executive compensation and welfare benefits. Part II, in the December 2008 issue, will focus on updates and changes to the rules for qualified retirement plans.

Sec. 409A

Though Sec. 409A was signed into law in 2004, (1) the IRS continues to issue guidance to ease the burden of complying with the new nonqualified deferred compensation (NQDC) rules. Over the past year, the IRS has released several noteworthy pieces of guidance.

Sec. 409A Transitional Guidance

Beginning on January 1, 2009, taxpayers are required to comply with the Sec. 409A final regulations, which were released in April 2007. Until then, taxpayers must operate an NQDC plan in compliance with the plan's terms, to the extent consistent with Sec. 409A and applicable IRS guidance (including Notice 2005-1 and other notices). (2) Where a provision of Notice 2005-1 is inconsistent with the final regulations, taxpayers may rely on either Notice 2005-1 or the final regulations, but generally may not rely on the proposed regulations after December 31, 2007. (3)

In October 2007, the IRS released Notice 2007-86 (4) to extend transition reli...

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