via Lockton Retirement Services

With large amounts of money involved and often informal designs, nonqualified deferred compensation (NQDC) plans can be attractive targets for the IRS. And, hot on the heels of the DOL unveiling its commentary on qualified plan audit reviews, the IRS this month also updated decade old guidelines for nonqualified plans. Responding to what it believes are significant problems with NQDC plans, the IRS’s Audit Techniques Guide, provides important insight on enforcement techniques.

Regulation of NQDC Plans

Unlike ERISA plans, NQDC regulation has much less history. The most significant regulations come in Section 409A of the revenue code, enacted in January of 2005. The IRS then provided strict rules for the administration of NQDC plans and imposed significant penalties for noncompliance. A month after 409A became effective, the IRS issued the first Audit Techniques Guide, noting that while the first draft was limited, a more detailed draft would be issued sometime after the 409A regulations were final. Those regulations became final in 2007 but it wasn’t until 2015 that the IRS finally made good on its promise.

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