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PD08: Dealing with the 409A Regulations
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
PLANSPONSOR
‘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
recordkeeping platform.
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."
-Sara Kelly
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