PD2007: Experts Say IRS 409A Regs Release a Much-Needed Road Map

CHICAGO - To hear James Clary tell it, the world of deferred compensation was in dire need of regulatory direction before the Internal Revenue Service (IRS) issued its final 409A "rule book" in April.

Add to the long-awaited IRS release (See IRS Issues Final Regulations for NQDC Plans, Final 409A Regs Include Important Modifications, Clarifications ), the Pension Protection Act’s codification about rules on corporate owned life insurance, and pronouncement about safe harbor protections and employers interested in non-qualified deferred compensation finally knew their way, Clary told a deferred compensation discussion panel at PLANSPONSOR’s recent PLAN DESIGNS conference.

“You had an industry in total uncertainty. You didn’t know whether you were up, down, sideways or what,” said Clary, President of MullinTBG, an executive benefits consulting firm. “Companies now have an understanding of what they can do to design these plans.”

But any plan sponsor who approaches a deferred comp plan looking for an easy ride need think again, Clary warned the discussion panel audience. “These plans are so much more complex today,” he said, noting that sponsor education about the new regulations was the largest part of his business.

Blaine W. Laverick, Vice President, the Principal Financial Group, told the panel that his company is also finding a thirst for knowledge. “There’s an awful lot of education that needs to be done in that marketplace and we’re attempting to fulfill that,” Laverick declared. Laverick said regulations for deferred compensation programs at non-profit employers are particularly complex because the involves both the mandates of 409A and 457(f).

New Plans

Both Clary and Laverick told the group that they’ve seen a notable upsurge in new deferred comp plans from employers who had been waiting for the regulatory clarity.

“I’ve had the experience of making a call where the plan sponsor said ‘We’re ready to put it in because the final (409A) regs are out’,” Laverick told the group.

Adviser Rob Kieckhefer, Financial Consultant, The Kieckhefer Group, said the IRS release didn’t come a moment too soon – at least not for employers who wanted it as an executive talent recruitment tool. “We have corporations that are desperately in need of this as a product,” Kieckhefer said.

Will Marquis, Vice President, The Baker Companies, pointed out that the IRS regulatory release also helped sponsors of existing plans. “The 409A (release) forced everyone to go back and take another look at their plans and bring them up to snuff,” said Marquis. “To the extent that it helped people to focus, that’s a good thing.”

Finally, several panel members cautioned sponsors to make sure their deferred compensation plan recordkeeper is also providing the proper service – particularly that the provider is not allowing participants to log on and make an illegal benefit selection.

“The recordkeeper needs to be able to lock out particpants’ chances to make an illegal choice,” Clary warned the audience. If the provider can’t, “you don’t want to be doing business with that platform.”