If you’re involved with a nonqualified deferred compensation plan, you probably know that plan documents had to be amended for final IRS regulations by December 31, 2008.
The IRS realizes that some employers may have failed to amend their plans, or failed to amend them correctly by the December 31, 2008 due date. So earlier this year, the IRS started a correction program for certain document errors in nonqualified deferred compensation plans.
What should you do?
If you know that your plan was not amended on time, or if you have some doubts as to whether it was amended correctly, have the document reviewed again.
If corrections are made in accordance with IRS guidance by December 31, 2010 and the corrections do not involve a pre-2011 payment error, then there are no income tax consequences or penalties. If a pre-2011 payment error is involved, this would be treated as a correctible operational error with income tax consequences.
Corrections, however, require certain disclosures in timely filed original federal income tax returns (including extensions) for both employers and individuals. Additional reporting requirements may apply. Call us or your plan attorney with questions.