What's New

Special Issues-January, 2005

Sweeping Changes to Deferred Compensation Rules

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• Qualified employer plans (under IRC Sections 401, 403, 423 and 457).
  
• Bona fide vacation and sick leave, compensatory time, disability or death benefits plans.

Deferral Election Rules:

• Initial deferral election for “non-performance based” compensation must be made before the tax year in which the deferred income will be earned.
  
• Deferral elections for “performance-based” compensation can be made up to six months before the end of the performance period.
  
• Subsequent elections to delay the timing or change the form of a distribution may not take effect until 12 months after the date on which the election is made. Elections must be made 12 months prior to the first scheduled payment and subsequent distribution elections must delay distribution for a minimum of five years from the date originally scheduled.

• Subsequent elections to accelerate the timing of distributions are not permitted, except as may be allowed under the IRS regulations.

Distribution Rules: Generally, distributions may not be made earlier than separation of service, disability, death, at a specified time (or pursuant to a fixed schedule) established at the time of deferral, change in control of the corporation, or an unforeseen emergency. Participants that are “key employees” of the corporation may not receive distributions on account of separation from service until six

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