Section 409A of the Internal Revenue Code (“Section 409A”), which regulates non-qualified deferred compensation arrangements, was signed into law in 2004 and went into effect January 1, 2005. Not only didSection 409A establish many new requirements for deferred compensation, but it also expanded the traditional notion of deferred compensation to include, among other arrangements, bonus plans, reimbursement policies, severance agreements, change in control agreements, and employment agreements.

If a plan or arrangement is not otherwise exempt from Section 409A and does not comply with its provisions, the employee/participant is subject to accelerated income tax on vested amounts (without regard to whether the amounts are currently payable), an additional 20% penalty tax (in addition to regular income tax), and possible interest penalties if the accelerated income taxes are not paid on time. There may also be additional tax consequences under state law.