In a victory for California employers and employees, on October 4, 2013, Governor Edmund G. Brown Jr. signed into law California Assembly Bill 1173 (“Bill 1173”), which reduces California’s additional tax on income for noncompliance with Section 409A of the Internal Revenue Code (“Section 409A”) from 20 percent to 5 percent for taxable years beginning January 1, 2013.

As noted in a previous Morrison & Foerster alert (see link below), compensation arrangements potentially subject to Section 409A include traditional deferred compensation plans, payments under severance agreements, employment agreements, change in control and retention agreements, discounted stock options, and other forms of equity compensation such as restricted stock units or “phantom” stock.