Section 409A Fundamentals

Summary

This practice note discusses the basic rules for nonqualified deferred compensation arrangements under Section 409A of the Internal Revenue Code. An understanding of Section 409A is critical for designing, establishing, and administering many types of compensation agreements and plans. Although this practice note focuses on deferred compensation plans, the same principles apply to any arrangement in which compensation will or may be paid in a year after the year in which the recipient obtains the legally binding right to the payment (unless an exception applies), including employment agreement severance provisions, incentive compensation arrangements, and retention bonus agreements.