Applying Section 409A to Severance Benefits

Resource type: Practice Note

Status: Maintained

Jurisdiction: USA

This Note explains the application of Internal Revenue Code Section 409A, relating to nonqualified deferred compensation plans, to various types of severance benefits. While some severance payments may be exempt from Section 409A because they qualify as short-term deferrals or fall under another exception explained in the Note, Section 409A needs to be considered and addressed whenever severance is being offered to ensure that it is structured in a manner that does not violate Section 409A.

Durward J. "Jim" Gehring, Seyfarth Shaw LLP

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Resource ID: 6-501-2702
Products: PLC US Employee Benefits & Executive Compensation, PLC US Labor & Employment, PLC US Law Department, PLC US Tax, Practical Law The Journal (US)
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Topics

Executive CompensationExecutive Compensation (http://usld.p01del.practicallaw.com/6-503-9117)
Health and Welfare PlansHealth and Welfare Plans (http://usld.p01del.practicallaw.com/2-503-9119)
Labor and EmploymentLabor and Employment (http://usld.p01del.practicallaw.com/1-500-0075)
RecruitmentRecruitment (http://usld.p01del.practicallaw.com/8-200-0626)
Retirement PlansRetirement Plans (http://usld.p01del.practicallaw.com/0-503-9120)
Termination of EmploymentTermination of Employment (http://usld.p01del.practicallaw.com/1-103-1222)

Practice Note: Overview

Section 409A: Deferred Compensation Tax Rules: Overview Section 409A: Deferred Compensation Tax Rules: Overview (http://uslf.practicallaw.com/topic6-501-2009)
Severance Benefits, Plans and Agreements: Overview Severance Benefits, Plans and Agreements: Overview (http://uslf.practicallaw.com/topic5-504-9367)

Practice Notes

Correcting Errors under Section 409A Correcting Errors under Section 409A (http://uslf.practicallaw.com/topic5-503-0749)
Determining Fair Market Value of Equity Awards under Section 409A Determining Fair Market Value of Equity Awards under Section 409A (http://uslf.practicallaw.com/topic1-502-0926)
Specified Employees under Section 409A Specified Employees under Section 409A (http://uslf.practicallaw.com/topic7-501-1330)
Terminating a Senior Executive: Key Benefits Issues Terminating a Senior Executive: Key Benefits Issues (http://uslf.practicallaw.com/topic5-500-6650)

Standard Documents

Executive Employment Agreement Executive Employment Agreement (http://uslf.practicallaw.com/topic0-504-2226)
Model Policy for Determining Specified Employees under Section 409A Model Policy for Determining Specified Employees under Section 409A (http://uslf.practicallaw.com/topic9-501-3823)
Payments to Specified Employees under Section 409A: Explanatory Memorandum for Directors/Compensation Committee Payments to Specified Employees under Section 409A: Explanatory Memorandum for Directors/Compensation Committee (http://uslf.practicallaw.com/topic5-501-2364)
Separation and Release of Claims Agreement Separation and Release of Claims Agreement (http://uslf.practicallaw.com/topic0-503-8253)
Separation and Release of Claims Agreement (California) Separation and Release of Claims Agreement (California) (http://uslf.practicallaw.com/topic7-505-8389)
Severance Pay Plan for Employees Severance Pay Plan for Employees (http://uslf.practicallaw.com/topic7-505-3891)

Standard Clause

Model Section 409A Employment Agreement Provisions Model Section 409A Employment Agreement Provisions (http://uslf.practicallaw.com/topic7-503-0263)

Checklists

Analyzing Severance Plans Flowchart Analyzing Severance Plans Flowchart (http://uslf.practicallaw.com/topic4-505-5858)
Compensation Used to Determine Specified Employees Checklist Compensation Used to Determine Specified Employees Checklist (http://uslf.practicallaw.com/topic7-501-1325)
Determining Specified Employees under Section 409A Checklist Determining Specified Employees under Section 409A Checklist (http://uslf.practicallaw.com/topic3-501-1332)
Equity Pitfalls under Section 409A Checklist Equity Pitfalls under Section 409A Checklist (http://uslf.practicallaw.com/topic3-502-9252)
ERISA Considerations For Severance Pay Policies Checklist ERISA Considerations For Severance Pay Policies Checklist (http://uslf.practicallaw.com/topic7-504-0059)
Requirements for a Change in Control Event under Section 409A Checklist Requirements for a Change in Control Event under Section 409A Checklist (http://uslf.practicallaw.com/topic3-517-0651)
Section 409A Six-month Delay, Short-term Deferral and Separation Pay Plan Analysis Flowcharts Section 409A Six-month Delay, Short-term Deferral and Separation Pay Plan Analysis Flowcharts (http://uslf.practicallaw.com/topic3-501-9168)
Terms to Consider When Designing a Severance Pay Plan Checklist Terms to Consider When Designing a Severance Pay Plan Checklist (http://uslf.practicallaw.com/topic3-504-8279)

Articles

Section 409A: Top Ten Compliance Pitfalls Section 409A: Top Ten Compliance Pitfalls (http://uslf.practicallaw.com/topic7-519-7644)
Webinar: Section 409A: Expert Advice on Avoiding Common Pitfalls Webinar: Section 409A: Expert Advice on Avoiding Common Pitfalls (http://uslf.practicallaw.com/topic5-519-9012)

Legal Update: archive

Controlled Group Rules for Employee Benefit Plans Controlled Group Rules for Employee Benefit Plans (http://uslf.practicallaw.com/topic6-523-5241)

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