Section 409A Six-Month Delay Rule Compliance

Summary

This practice note describes how to identify specified employees—certain key employees of public companies who are subject to the six-month delay rule under I.R.C. § 409A (Section 409A)—and how to comply with the requirements of the six-month delay rule. To comply with this rule, an arrangement providing for deferred compensation that is subject to Section 409A (Section 409A plan) generally must delay by at least six months any payment to specified employee that is triggered by the employee’s separation from service. Failure to comply with this rule can result in significant adverse tax consequences for the specified employee, including becoming subject to a 20% excise tax on all amounts deferred under the plan (and under other similar plans and arrangements). In addition, employers may become subject to penalties for tax-reporting and withholding failures on deferred amounts.