Can a 409A plan be amended?
Although modifications or terminations of plans may constitute plan failures, certain exceptions to the general Sec. 409A rules allow an employer to modify or terminate a plan without triggering the Sec. 409A sanctions.
What is a 409A Change in Control?
409A Change in Control means a “Change in Control” which also constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, all within the meaning of § 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Sample 2.
What does 409A require?
Under Section 409A, deferral elections must be made by the end of the taxable year before the year in which deferrals are made. Companies generally hold open enrollment periods at the end of a year during which employees make their deferral elections for the following year.
What is a 409A plan?
A nonqualified deferred compensation arrangement subject to Section 409A is defined as any plan, including any agreement or arrangement, “that provides for the deferral of compensation other than a qualified employer plan and any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit …
Is an IPO a 409A Change in Control?
An initial public offering, or IPO, does not constitute a change in control—and therefore does not constitute a permissible payment event—under section 409A. An employee experiences a separation from service under section 409A upon death, retirement, or a termination of employment.
How does a 409A plan work?
In a broad sense, a nonqualified deferred compensation plan refers to compensation that the company promises to pay to its participants in a subsequent plan year. Essentially, workers earn a sum of money in one year and they get paid at some time in the future.
How do I comply with Section 409A?
In order to keep a plan compliant with 409A, Fogleman says, the basic rules are first, the plan has to be in writing. The plan must specify how much compensation will be deferred, when it will be paid and the form of payment. He says there are five permissible times the deferred compensation can be paid.
What is 409A penalty?
409A Penalties for Not Satisfying Compliance Rules Employee tax penalties for 409A non-compliance include: Employees must pay income tax and a 20% penalty on all deferred vested amounts under the NQDC plan as of the last day of the vesting year, even when payment occurs in subsequent years.
Does 409A apply to independent contractors?
Answer: Employees, independent contractors and directors who have entitlements to receive nonqualified deferred compensation are affected by Section 409A, and entities that perform services can be affected.
Who is a specified employee under 409A?
SPECIFIED EMPLOYEE Any employee who owned more than 5% of the stock of the company at any time during the year. Any employee who owned more than 1% of the stock of the company at any time during the year and received annual compensation greater than $150,000.