SUMMARY OF 409A BASIC RULES AND CONCEPTS

BDDB01 4821965v2 BRIEF SUMMARY OF BASIC 409A RULES AND CONCEPTS I. Introduction. Added to the tax code in October of 2004, Section 409A has created a new body of law governing deferred compensation. A. On the positive side, Section 409A resolves decades of uncertainty created by conflicts between IRS positions and federal court authority. On the negative side, it eliminates many common plan designs, magnifies the risks of being wrong, and creates new issues and restrictions for many types of arrangements not commonly thought of as "deferred compensation." B. Section 409A, in essence, creates a new category of "semi-qualified" deferred compensation plans. The statute calls them by their traditional name - "nonqualified deferred compensation plans" - to distinguish them from "qualified employer plans" (fully tax-advantaged pension plans and 401(k) plans, for example), but at the same time, Section 409A imposes statutory standards that these plans must now meet to preserve their traditional, limited tax-deferral.

3 BDDB01 4821965v2 regulations use the terms "service provider" and "service recipient" instead of employee and employer.) III. Exempt Compensation Arrangements.

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