This week, the IRS announced in Notice 2007-86 that the operational deadline for bringing nonqualified deferred compensation arrangements into compliance with the final regulations under Code Section 409A generally is extended until December 31, 2008.  This recent extension supersedes the limited relief for documentary compliance announced in September (Notice 2007-78), which allowed employers an additional year to adopt most formal amendments to their nonqualified deferred compensation plans but still required full operational compliance by December 31, 2007.  This prior limited relief was widely criticized with commentators stating that employers needed more time to analyze their plans and make informed and reasoned decisions regarding the necessary changes to bring existing arrangements in compliance with the final regulations. 

Specifically, Notice 2007-86 provides the following relief:

• Nonqualified deferred compensation arrangements must continue to comply in operation with Section 409A on a reasonable, good faith basis based on the statute and any generally applicable guidance issued through December 31, 2008.  Until January 1, 2008, compliance with either the proposed regulations issued in October 2005 or the final regulations is not required, but either constitutes reasonable, good faith compliance.  After December 31, 2007, compliance with the final regulations is not required but will constitute reasonable, good faith compliance, but reliance on the proposed regulations generally will no longer be permitted.
• Employers have until December 31, 2008 to amend plans and other arrangements to comply with Section 409A and the final regulations, including the specification of the time and form of payment.
• Plans may continue to permit form and time of payment changes to existing elections through December 31, 2008.  Any such changes made in 2008 may not apply to amounts that would otherwise be payable in 2008 or cause an amount to be paid in 2008 that otherwise would not be payable in 2008.
• A time and form of payment election under a nonqualified deferred compensation plan may be linked to an election under a qualified retirement plan, 403(b) annuity, 457(b) eligible plan or certain foreign retirement plans through December 31, 2008.
• The guidance and relief provided under Notice 2007-78 regarding certain aspects of employment agreements and predetermined cash-out provisions continue to be effective, and the deadline for certain permitted modifications to employment agreements is extended to December 31, 2008.