Follow-Up on “Section 409A Meets 162(m) and Some Plans and Agreements May Need to be Amended”
Readers asked a few questions about last week’s post on Section 409A Meets 162(m) and Some Deferred Compensation Plans and Agreements May Need to be Amended by December 31. In effect, all of the questions boiled down to one: “But Mike, doesn’t this only apply to our non-qualified deferred compensation plans and SERPs?”
The answer is: Language providing for the delay of payments that, if made as scheduled, would not be deductible due to the $1 million deductibility cap of Code Section 162(m) most often appears in SERP and deferred compensation plan documents. However, we (and other firms, presumably) had for some clients drafted this language into employment and equity award agreements and special bonus, severance, and other types of plans and arrangements. We did not add this further deferral language often, but for some clients for which Section 162(m) was a major concern, e.g., where all 5 NEOs where way over the $1 million cap, and under some arrangements under which significant sums might be paid, we did add it.
Therefore, when you review your compensation plans and agreements for this 409A/162(m) trap, please take a moment to look beyond the deferred compensation plans and SERPs.
-Mike Melbinger, CompensationStandards.com December 7, 2020
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