Update on Non-Qualified Deferred Compensation Legislation
10/11/2004As anticipated, the Senate voted earlier today to approve the American Jobs Creation Act of 2004, also known as the JOBS bill. The bill is now being sent to President Bush, who is expected to sign it into law. The JOBS bill contains provisions that change long-standing rules used by companies to provide non-qualified deferred compensation to their executives. We are evaluating and preparing for these provisions so that we can assist you in quickly making required changes. These provisions are effective for compensation deferred on or after January 1, 2005. Employers will need to change their non-qualified deferred compensation plan documents and procedures very shortly in order to comply with these provisions.
Overall, the provisions restrict the timing of payments, limit when executives can defer compensation and prohibit certain uses of offshore trusts and financial triggers for accelerated payments in order for compensation to be deferred on a tax advantaged basis. It is important to note that the legislation in no way prohibits non-qualified deferred compensation or the use of domestic rabbi trusts. Provisions in the Senate version of the JOBS bill that would have restricted investment options were removed from the final bill. Deferred compensation earned and vested before the end of this year and related earnings are not subject to the new provisions, provided that there are no material modifications to the terms of the plan that govern those benefits.
For more information regarding what steps employers should take with respect to their plans along with a detailed summary of the bill's provisions, please contact your regular McDermott lawyer or Paul Hamburger, John Hendrickson, or Andrew Liazos.
