What's New

Special Issues-January, 2005

Sweeping Changes to Deferred Compensation Rules

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time provided by the notice will allow companies the opportunity to thoughtfully amend their existing programs and bring them into compliance with the new Act.

The major provisions of the Job Creation Act of 2004 are summarized below. Please note, this letter is neither a complete discussion of the law, nor is it legal advice. It is intended to make our clients aware of impending changes that may affect their executive deferred compensation plans.

Provisions of the Law

Effective Date: January 1, 2005. Amounts deferred on or prior to December 31, 2004 must be earned and vested by this date. Pre-2005 deferrals must also be made into plans that were not materially modified after October 3, 2004 to be compliant with the Act.

General Rule: After December 31, 2004, all amounts deferred into a plan that does not satisfy the new rules will be included in current income and taxed accordingly. Additional penalties will also be imposed, including an additional 20% penalty tax, on the amount includable in income.

Nonqualified Deferred Compensation Plans Defined: Any plan that provides for the deferral of compensation except:

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