409a Regulations Changes Require Employers to Review Nonqualified Deferred Compensation Plans and make Changes by December 31, 2007

On April 11, 2007, the Treasury Department and IRS released the long awaited "final" 409A regulations on nonqualified deferred compensation. The regulations apply to salary or bonus deferrals, payments of compensation in a future year, many severance pay arrangements, and discounted stock options. In some cases, the IRS will seek penalties directly from executives rather than their employers.

Qualified Plan Audits

The Federal Government is taking an unprecedented, aggressive stance on 401(k) and other qualified retirement plans:

• The IRS has increased audit activity and violations discovered on audit result in sanctions up to 20% of plan assets.
• Qualified plans must comply with the Sarbanes-Oxley Act and ERISA duties. Notably, Secretary of Labor Elaine Chao has stated, "The time has come to move the focus of pension plan governance out of the human resources department and beyond compliance with tax laws. The executive level suite needs to focus on pension plan governance itself, especially the responsibility and liability of pension plan fiduciaries."
• There has been an increase in class action lawsuits filed regarding expenses charged to retirement plans and full disclosure of those expenses.

It is our strong recommendation that all companies that have not done so in the last two years, review their retirement plan operations to ensure that they are in compliance.

Greater Benefits for Key Employees

401(k) and other retirement plans often do not take full advantage of opportunities to benefit key employees. Employer contributions can be leveraged to provide additional benefits to key personnel while still complying with IRS nondiscrimination tests

The Allen Matkins Employee Benefits attorneys can help you:

• Perform a screening review to determine whether problems exist with your plans and build appropriate controls to reduce liability
• Amend your plans to comply with the new regulations
• Redesign your employer matching or other contributions to provide significant additional benefits to key employees with minimal costs to your company