Recent economic instability caused by the coronavirus (COVID-19) pandemic has caused many companies and their employees to suffer economic hardships that do not have a clear end in sight. As a result of ongoing fluctuations in the markets, uncertainty about job security and increased medical and other expenses, people are experiencing a real need for increased liquidity in the short term. Companies that maintain nonqualified deferred compensation plans may be approached by employees seeking to take distributions of deferred compensation from their plan accounts or to cancel or suspend currently outstanding deferral elections under the plan.
The challenge for both companies and their employees is that nonqualified deferred compensation is subject to Section 409A of the Internal Revenue Code, which was designed to prevent the early payment of deferred compensation amounts and often fails to provide needed flexibility in a crisis like we are experiencing today.
This memo discusses various approaches that companies may be able to utilize within the current Section 409A landscape to provide their employees some relief by allowing them to take distributions of, or cancel deferral elections with respect to, nonqualified deferred compensation.
Read the full memo here.
The COVID-19 pandemic and the ensuing market uncertainty, as well as recently enacted legislation, have upended the compensation and benefit programs of many companies. This memo is the fourth in a series of client memos that discuss considerations for companies as they navigate issues relating to their short-and long-term incentive programs amid—and in the wake of—the COVID-19 pandemic. The previous installments in this incentive compensation series can be accessed here and here and via hyperlinks included in this memo.