July 7, 2016
Authored by: Chris Rylands and Katharine Finley
On the TV show Futurama, the aged proprietor of the delivery company Planet Express, Professor Hubert J. Farnsworth, had a habit of entering a room where the other characters were gathered and sharing his trademark line, “Good news, everyone!” Of course, his news was rarely good. More often, it was the beginning of some misadventure through which the other characters would inevitably suffer, often to great comedic effect. So we can forgive you for thinking that we may be standing in his shoes when we tell you that new 409A regulations are good news, but really, hear us (read us?) out.
The IRS released proposed changes to both the existing final regulations and the proposed income inclusion regulations. And the news is mostly good.
The changes are legion, so we are breaking up our coverage into a series of blog posts. This first post is all about the changes related to the end of the service relationship. Check back for future posts discussing other aspects of these proposed regulations.
Severance Safe Harbor Available for Bad Hires. Severance is, surprisingly to some, generally considered deferred compensation subject to 409A. However, severance can be exempt from 409A if the severance is due to a truly involuntary separation under 409A and does not exceed two times the lesser of (1) the employee’s prior annual compensation or (2) the limit on compensation