| Test Your Human Resources Knowledge | ||
|
| Labor Law Journal Submissions | ||
|
| Labor Arbitrators' Awards and Biographies | ||
5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Deferred compensation arrangements maintained by tax-exempt organizations must be reviewed under Code Sec. 409A even if they appear to comply with the requirements of Code Sec. 457(f), according to Jim Joseph of Arnold & Porter and Greg Needles of Morgan, Lewis & Bockius, who spoke at a program of the D.C. Bar Taxation Section's Exempt Organization Committee on January 24, 2007. Amounts that may be nontaxable under Code Sec. 457(f) because of a substantial risk of forfeiture may be taxable under Code Sec. 409A because the term has a much stricter meaning.
One of the unresolved issues regarding deferred compensation agreements is the definition of an involuntary termination. If termination is not triggered for a good reason, the payable amounts are taxable. Needles said that he understands the IRS would like to provide some guidance in this area, if possible. Another potential problem area is consulting arrangements. Does a consulting agreement create a substantial risk of forfeiture? Is it a sham that triggers taxation under Code Sec. 409A? The IRS has threatened to address whether a plan's requirement for the future performance of services constitutes a bona fide risk of forfeiture.
The issue of covenants not to compete is another unresolved area. Many exempt organizations use these agreements to avoid triggering the payment of deferred compensation. Joseph said the IRS is focusing with some degree of aggressiveness on noncompete clauses and whether they constitute a substantial risk of forfeiture.
Under Code Sec. 409A, deferred compensation includes any legally binding agreement to pay an amount in the future. These amounts can include items as diverse as legal fees, housing costs, private airplane costs, moving expenses and payment of losses on the sale of a house. In some cases, Joseph said, he does not know how to make these arrangements compliant with Code Sec. 409A. Other potential problem areas include a sabbatical program where there is no requirement to return to work, and a leave program with excess accruals. Needles said that taxpayers have staked out many aggressive arrangements under the substantial risk of forfeiture regulations of Code Sec. 457(f), but that the comparable rules in Code Sec. 409A are tighter, and the IRS may scrutinize the plans. This should give practitioners an excuse to revisit clients' employment arrangements.
Joseph said that he uses the following checklist for reviewing Code Sec. 409A compliance: he looks at employment agreements, severance agreements not fully paid out and severance policies, even if not written; he checks the plan's definitions of substantial risk of forfeiture, separation from service and other terms; and he then looks at the plan's elections, payment triggers, timing of payments, and ability to change payouts. He also considers whether the plan meets any exceptions to Code Sec. 409A.
For more information on this and related topics, consult the CCH Pension Plan Guide.
Visit our News Library to read more news stories.
©2005-2024 CCH Incorporated or its affiliates
