The Treasury Department and IRS have announced the issuance of Notice 2005-1 which provides guidance (in Question and Answer format) regarding transition rules under recently enacted section 409A of the Internal Revenue Code governing nonqualified deferred compensation plans. (Read about the new rules here.)
The Treasury and IRS state in the Notice that the Notice is only “the first part of what is expected to be a series of guidance with respect to the application of § 409A” and that they “intend to incorporate the principles of [the] notice into additional, more comprehensive guidance in 2005.”
The press release also makes this statement:
IRS Chief Counsel Donald Korb said, “Given the significant changes that section 409A will require for nonqualified deferred compensation plans, we developed this guidance being mindful to avoid establishing rules that could become traps for the unwary.”
The Notice provides that actual amendments to plans can be delayed as late as December 31, 2005 if the plan is operated in good faith compliance with the provisions of § 409A and the Notice during the calendar year 2005. (See Q & A 19.) There is also a provision allowing certain severance plans which are collectively bargained or which do not cover any key employees to delay operational compliance with section 409A until 2006 (as long as the plans are amended on or before December 31, 2005.)