The release of the 409A regulations clarified the
legal and regulatory structure being imposed on the
non-qualified deferred compensation (NQDC) plans without
making them less complicated to administer, said
panelists in a NQDC discussion at
‘s recent Plan Designs Conference in Chicago.
align=”center”> The Panel Audio File
align=”center”> The Final 409A Regulations
Jim Clary, President of MullinTBG, (See Non-Qual Participants Demand High-Touch Account Tools ) and other panelists, said that while there was some concern that plans would be cancelled after the new 409A rules came out, there is still a thriving deferred compensation marketplace.
Jason Chepenik, Managing Partner at Chepenik Financial, and Kenneth Dayton, Regional Director of The Newport Group, explained that the government eased the burden of complying with the regulations. Chepenik said that, because the government has offered a period of transitional relief, plan sponsors should know how to take advantage of that.
John Smith, Vice President at Merrill Lynch,
offered suggestions for employers who are looking for
providers that can administer a 409A plan properly. He
said the most important things to consider are the
ability to answer tough questions and a strong
Chepenik commented that platforms built to support a 401(k) plan could generally not provide the services required by a deferred compensation program. However, Smith said he thought a 401(k)-type system could work if it was designed with a payment to the participant available only at the time of termination of service, and if not built for a public company that had a specific employee in mind.
Clary said that his "first and foremost" concern would be the provider's employees; he agreed with Smith that a certain degree of expertise by the provider would be expected.
Clary's second concern pertains to the technology-whether a system is 409A compliant and if there are ways to make sure all procedures are in place and functioning properly. He and Smith agreed that NQDC plans do not have a set correctional program, so any mistakes could be costly.
The panelists agreed that while 409A has presented many challenges for providers and sponsors, it has also given them opportunities to provide better and more efficient plans for their participants.
There are still many difficulties associated with administering plans within 409A regulations, but those restrictions have also provided a guidebook of sorts for concerned parties who are becoming increasingly confident with their responsibilities. When asked what he would request if the government granted him one wish concerning NQDCs, Dayton said, "Please make the rules clear and consistent, and let us take it from there."