New Code Section 457A - Nonqualified Deferred Compensation

November 3, 2008

The attached memoranda discuss new Internal Revenue Code Section 457A, which was signed into law on October 3, 2008 as part of the Emergency Economic Stabilization Act of 2008 (H.R. 1424). Section 457A requires the inclusion in income of any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity when the compensation is no longer subject to a substantial risk of forfeiture. Amounts that are not determinable at the time there is no substantial risk of forfeiture are includable in income when they are determinable, subject to an interest charge (computed back to the year in which the compensation was deferred or was released from a substantial risk of forfeiture) plus a penalty tax equal to 20% of the amount of such compensation.

The memorandum titled “Executive Summary - New Section 457A (Nonqualified Deferred Compensation)” provides a summary overview of section 457A and highlights the key uncertainties that currently exist in the absence of further guidance. It also sets forth a list of next steps that we would recommend to take in order to ensure that existing and new deferred compensation plans are compliant with section 457A. The memorandum titled “Thoughts on the Scope and Implications of New Section 457A (Nonqualified Deferred Compensation)” contains a more detailed discussion of the scope and implications of section 457A.

Please call the lawyers listed in the memorandum, or any of your contacts in the Cleary Gottlieb tax and employee benefits groups, if you have questions concerning the implications of section 457A.