June 30 Deadline for Bonus Deferral Elections Quickly Approaching

Performance-based compensation awards for performance periods ending December 31, 2005 can be deferred under elections made as late as June 30, 2005. As indicated in a previous Management Alert (click here), near the end of 2004, Congress enacted Internal Revenue Code Section 409A, altering the structure and operation of nonqualified deferred compensation plans effective January 1, 2005. Among other requirements, Section 409A requires that initial elections to defer compensation be made within specified time frames. Bonus plans that pay awards within two-and-a-half months of the end of the year in which the right to the bonus vests are not subject to these Section 409A rules. However, many plans permit employees to elect to further defer payment of awards.