However,  the analysis by The Benefits Group of the  Washington, D.C. law firm Davis and Harman, LLP for the American Benefits Council (ABC), also pointed out that the final regulations contain numerous modifications, clarifications and more detailed rules.

In terms of the basic approach used in the preliminary versus final regulations, the law firm pointed out that all non-qualified deferred compensation (NQDC) plans, including elective plans, nonelective plans, and defined benefit SERPs, must meet the timing of deferral rules and must include a specified payment date that meets the 409A standards.

The  Davis and Harman analysis also specified a number of items in the final regulations it said “are likely to have broad application to employers and service-providers.”     Regulators issued the final regulations on Tuesday (See IRS Issues Final Regulations for NQDC Plans).

According to the Davis and Harman analysis, the final regulations:

• continue the requirement that the exercise price of an option or stock appreciation right (SAR) that is not subject to 409A be no less than the fair market value on the date of the grant. The final regulations reject the adoption of the "incentive stock option (ISO)" rule, which would provide for any "good faith" valuation method.
• continue to treat deferred dividend payments as separate arrangements from the underlying option or SAR, which must either separately meet the 409A rules or satisfy one of the 409A exceptions.
• adopt many of the comments requesting that an extension of the exercise period not be treated as a modification of the option or SAR. The final regulations provide this relief as long as the extension does not exceed the end of the original option period (not to exceed 10 years).
• retain the helpful s hort-term deferral (e.g., "vest and pay") rule exception but make clear that it only applies where, by the terms and the operation of the arrangement, payments are always due in the calendar year or no later that 2-1/2 months following the vesting event. The exception does not apply to "coincidental" payments upon vesting.
• include a number of changes that are relevant both to the "separation pay" exceptions from 409A and the application of the short-term deferral exception to amounts paid upon a separation. The final regulations clarify that the exception from 409A for certain separation pay upon on an involuntary termination (or a window program) applies to the extent that amounts do not exceed two times pay (up to twice the 401(a)(17) limit).
• respond to requests for guidance on the types of "good reason" provisions that may result in separation pay being subject to a substantial risk of forfeiture. The final regulations define good reason under a facts and circumstances test and also provide a safe harbor for payments meeting certain criteria ( e.g., payments triggered by a material diminution in duties, compensation, or authority) that are made no later than one year following the "good reason" and that are made under the terms of an arrangement where the service recipient has the opportunity to remedy the good reason condition after it is declared by the employee.
• clarify that the special timing rules for deferral elections on performance-based compensation must be made prior to the date that the amount is "readily ascertainable," as opposed to the "substantially uncertain" standard used in the proposed regulations. Nonetheless, the final regulations indicate that if some but not all the performance-based compensation becomes readily ascertainable because satisfaction of the goal is substantially certain then, as to those ascertainable amounts, the deferral election must be made at an earlier date when the standard can be met.
• expand the definition of commissions to include investment commission income, which generally can be deferred under an election filed prior the year in which such commission arises.
• provide clarification on when a payment schedule meets the 409A standards and expand the rules for payments on a specified date to include payments based upon both a specified age and years of service (as determined under the plan). The final regulations also respond to comments by allowing the timing of NQDC payments to be based upon an objective formula, such as profits, and the collection of the employer's accounts receivable, provided that certain anti-abuse rules are met.
• modify and generally liberalize the proposed regulations' presumptive rules for determining when a reduction in services is a separation from employment. In general, the proposed regulations treat both employee and independent contractor service providers as being subject to the same rules.
• provide that a contractor may be treated as having separated from service under 409A where the level of service is reduced to a level that is expected to be no more than 20% of the level of services for the prior 36-month period.
• allow an employer to define the controlled group to include entities in which there is as little as a 20% ownership, provided that the there is legitimate non-tax reason for doing so under 409A. The final regulations also allow an employer to treat an employee whose employer leaves the controlled group but who continues working at the "same desk" in an asset sale to be treated as having not separated from service even though the employee is no longer working for an employer in the controlled group.

The exception from 409A for accelerated NQDC payments to avoid ethics violations generally is expanded to include any federal, state or local law.

The final regulations are effective as of January 1, 2008.