This article continues with another board for the development of employment contracts for executives and the importance of the board. Second, a review of each existing agreement and plan must be carried out. Section 409A generally came into effect on January 1, 2005. Only in rare cases is an existing severance pay or employment contract excluded from Section 409A on a grandfather`s basis. Instead, most existing agreements must be amended to comply with Section 409A. Although compliance with operational requirements is currently sufficient, the deadline for compliance with Section 409A documents expires on December 31, 2006. If a non-compliant provision is not removed or corrected before December 31, 2006, it may be too late to resolve the issue, even if the default is found before an actual payment. Deferred compensation can therefore be created in many ways through employment contracts, severance agreements and transaction agreements. Under a labour agreement, it may be possible to promise to pay a certain amount to a worker if he or she works for an employer for a specified period of time or if a financial objective is met. A severance package or other agreement may provide for the payment of a specified amount in the event of a particular event.

Similarly, a severance contract or settlement agreement for an action negotiated with a staff member after his or her departure may result in deferred compensation if payments are made beyond the current calendar year. Therefore, labour law and personnel specialists should be vigilant to ensure that, when an agreement creates deferred compensation, appropriate measures are taken to address the consequences of Section 409A. As a general rule, the employer separates from the service after death, retirement or any other termination of employment. Where an employment agreement or separation agreement provides for payment in the event of a “separation of service”, either failure to make a payment in the event of a section 409A separation, or a payment triggered in the absence of a section 409A separation, could result in the triggering of an excise duty. The final rules indicate when a worker is considered a non-service during an authorized leave (usually the day after a six-month leave (or more if the worker`s right to re-employment is a longer period, as required by current legislation) Additional rules apply to determine whether a staff member whose working time has been reduced has undergone a separation from service. If the level of service is less than or less than 20% of the average level of service provided during the 36-month period immediately preceding, the worker is deemed to have been separated from the service. If the level of service drops to 50% or more of the average level of service provided in the 36-month period immediately preceding, the employee is presumed not to have separated from the service. There is no presumption if the level of service is greater than 20%, but less than 50%. Under Section 409A, deferred compensation is at significant risk of expiry if deferred compensation is conditional on the provision of significant future benefits or a condition related to a compensation purpose and if the possibility of recovery is significant.