This item is of interest because it illustrates how issues involving section 409A can arise.
IRS Notice 2009-92 (the “Notice”) provides guidance for a financial institution (a “TARP Recipient”), which has received financial assistance under the Troubled Asset Relief Program (“TARP”), on how to comply with section 409A of the Internal Revenue Code (the “Code”) when amending its nonqualified deferred compensation plan to comply with an advisory opinion of the Office of the Special Master for TARP Executive Compensation (the “Special Master”).
In October, 2008, the Treasury Department established TARP under the Emergency Economic Stabilization Act of 2008 (“EESA”). Under an interim final rule published by the Treasury Department on June 15, 2009, a TARP Recipient may request an advisory opinion from the Special Master as to whether a compensation structure is consistent with TARP, EESA, and the public interest. Also, the Special Master may render such an advisory opinion at his own initiative. The advisory opinion is not binding on the TARP Recipient who receives it, but the TARP Recipient may rely on the advisory opinion as to whether the covered compensation structure discussed in the opinion meets the consistency requirement.
An advisory opinion issued by the Special Master may indicate that changes to the time or form of payment of compensation under the TARP Recipient’s nonqualified deferred compensation plan (the “Plan”) are needed for the Plan to be consistent with TARP, EESA, and the public interest. The advisory opinion may also indicate that, to achieve such consistency, payment of compensation made under the Plan must be subject to certainTARP-related conditions, for example, the prior repayment of some or all of the financial assistance received by the TARP Recipient. However, the foregoing raises the problem that, to modify the Plan in the manner indicated in the advisory opinion, payments of compensation made under the Plan might have to be accelerated or delayed, causing the Plan to fail to meet the requirements of Code section 409A. The Notice addresses this problem.
The Notice applies when the advisory opinion is issued after September 30, 2009. Under the Notice, any changes made to the time or form of payment of compensation under a Tarp Recipient’s Plan, as required by the advisory opinion, will not cause the Plan to fail to meet the requirements of section 409A, so long as a number of conditions are met. In general, these conditions are:
— the advisory opinion is specifically addressed to that TARP Recipient and Plan;
–the TARP Recipient has fully disclosed to the Special Master the employees whose compensation will be affected by complying with the advisory opinion, and any similarly situated employees;
— the advisory opinion explicitly sets forth (1) a revised time and form of payment for the compensation which complies with section 409A and/or (2) a condition on payment of compensation under the Plan that is directly related to the TARP financial assistance received by the TARP Recipient, or to the ability of the TARP Recipient to repay the TARP financial assistance;
— the advisory opinion does not authorize the TARP Recipient or any recipient of compensation under the Plan to elect another time or form of payment of compensation due from the Plan, other than in a manner which complies with section 409A;
— the TARP Recipient and any recipient of compensation under the Plan must enter into a written agreement containing the revised time and form of payment, and any applicable conditions on payment, not later than by the end of the compensation recipient’s taxable year in which the advisory opinion is issued, or by the 15th day of the third month following the date on which the advisory opinion is issued, if later; and
— the TARP Recipient and any recipient of compensation under the Plan complies with the terms of the advisory opinion in all material respects.