What is Section 409A?

Section 409A is a new section of the Internal Revenue Code that deals specifically with nonqualified deferred compensation plans. It was created as part of the American Jobs Creation Act of 2004, which was passed by Congress and signed into law in October 2004. Section 409A generally applies to amounts deferred after December 31, 2004. However, the rules in 409A would also apply to any amounts deferred prior to that time if a "material modification" is made to the plan after October 3, 2004.

Section 409A has been described as a "sea change" for nonqualified deferred compensation. There is little doubt regarding the significance these new rules will have on the design and operation of nonqualified deferred compensation plans, and on those who sponsor them. As a result, plan sponsors need to be familiar with the new rules, and have the information and resources necessary to implement the changes required by this “sea change.”

Read the latest news and background information on 409A.

What is section 101(j)?

Section 101(j) is a new section of the Internal Revenue Code. This new statute codifies insurance industry “best practices” relating to the use of employer-owned life insurance (often referred to as “COLI” or “BOLI”) to fund/finance employee benefits.

Under section 101(j), death benefits from COLI/BOLI policies are excludable from an employer’s taxable income if the requirements of the statute are satisfied. The requirements of section 101(j) generally are consistent with current insurance industry “best practices.” In particular, section 101(j) contains notice and consent requirements that must be completed before a COLI/BOLI policy is issued, and generally limits potential insureds to directors and “highly compensated” employees. If an employer does not comply with section 101(j), all policy proceeds in excess of total premiums paid by the employer would be included in the employer’s taxable income.

Read the latest news and background information on 101(j) .