Enacted in 2004, Internal Revenue Code Section 409A regulates compensation paid on a deferred basis. That is, if an employee has a legally binding right to receive income in one calendar year, but does not receive that income until a subsequent calendar year, that income is subject to 409A unless an exception applies.
The application of 409A is extensive and includes phantom stock plans and other types of compensation, such as the following:
Qualified retirement plans, health and medical plans, employment claim settlements and foreign plans are all exempted from the requirements of 409A. Also, plans that provide for payment within the “short term deferral exception” can avoid the restrictions of 409A.
Non-compliance with 409A may subject plan participants to the following harsh results:
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