In Notice 2009-49, the IRS states that a transaction under the Troubled Asset Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008 (“EESA”), which involves the acquisition by the Treasury Department of stock or another type of equity in a financial institution or other entity, is not an event with respect to which a payment can be made under a nonqualified deferred compensation plan (“NQDCP) under Section 409A of the Internal Revenue Code and the underlying Treasury regulations. The Notice clarifies that, for purposes of those regulations, this type of transaction-a “TARP Transaction”- is not a change in ownership or effective control, or a change in the ownership of a substantial portion of the assets of the corporation, and therefore is not a permissible Section 409A payment event.
Accordingly, a NQDCP will fail to satisfy the requirements of Section 409A if it makes a payment on account of a TARP Transaction, and will not fail to satisfy those requirements merely because it fails to make a payment on account of a TARP Transaction. Further, a NQDCP will not fail to satisfy any requirement of Section 409A or the underlying regulations (e.g., the written plan requirement) merely because it fails to explicitly provide that a TARP Transaction will not trigger a payment, without regard to whether the plan incorporates the definition of a change in control event by reference to the regulations or sets forth a definition of a change in control event that is otherwise compliant.
The IRS intends to amend the regulations under Section 409A to incorporate the guidance set out in Notice 2009-49. The Notice and the amended regulations will apply to TARP transactions occurring on or after June 4, 2009. The Notice is here.