What's New

Special Issues-January, 2005

Sweeping Changes to Deferred Compensation Rules

On October 22, 2004, President Bush signed the Job Creation Act of 2004. This new law has a significant impact on non-qualified deferred compensation plans. It calls on the Treasury Department and the IRS to issue guidance regarding the termination and/or amendment of certain nonqualified deferred compensation arrangements within 60 days of the President’s signature. Notice 2005-1, released December 20, 2004 addresses the timing of this Act and potential amendments to nonqualified deferred compensation plans. Additional guidance covering these issues will be provided by midyear 2005. Even before the additional guidance is published, it may be prudent to take a look at your current plans.

We now have an indication that the Act will impact some Supplemental Executive Retirement Plans (SERPs) as well as future grants of some Stock Appreciation Rights (SARs). On a positive note, the Notice also clarifies that Traditional Restricted Stock programs are not deemed to be deferral programs and thus are not subject to Section

409(a) provided they have a significant risk of forfeiture associated with them.

The Act affects deferrals made after December 31, 2004. However, companies have until December 31, 2005 to amend existing plans so that they are in compliance with the Act. In addition, a plan that was adopted before December 31, 2005 may be amended to allow participants to terminate participation or cancel a deferral election (in whole or part) prior to December 31, 2005. Total Compensation Solutions believes the additional

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