July 2010 Newsletter Available
The Pangburn Group's quarterly newsletter, containing the lead article: Final Guidance on Incentive Compensation Applicable to Banking Organizations is now available for viewing.

April 2010 Newsletter Available
The Pangburn Group's quarterly newsletter, containing the lead article: Top Hat Plans - 2009 DOL Results is now available for viewing.

January 2010 Newsletter Available
The Pangburn Group's quarterly newsletter, containing the lead article: IRS Notice 2010-6: Guidance on Correcting 409A Document Failures is now available for viewing.

Washington Report 10-07, IRS Establishes a 409A Document Correction Program.
The Internal Revenue Service has finally established a document correction program under Revenue Code section 409A. The program was established through the issuance of IRS Notice 2010-6, which prescribes the rules and procedures under which nonqualified deferred compensation documents can be modified in certain cases without incurring the full sanctions that otherwise would be imposed under section 409A. A copy of AALU's Washington Report 10-07 is now available in our 409A section. You can view the report here.

IRS Notice 2010-6: Guidance on Correcting 409A Document Failures
"This notice provides methods for taxpayers to voluntarily correct many types of failures to comply with the document requirements applicable under section 409A of the Internal Revenue Code to nonqualified deferred compensation plans and thereby avoid or reduce the current income inclusion and additional taxes under section 409A.”… so states the “Purpose” of Notice 2010-6 that offers employers an opportunity to correct certain documentary issues that are not compliant with Section 409A. Analysis of the 86 page Notice is beyond the scope of this news item, but suffice it to say, any guidance and relief is welcomed especially in light of an IRS initiative to audit 6,000 companies (including 409A audit compliance) over the next 3 years. The new correction program is intended to encourage taxpayers to review their nonqualified deferred compensation arrangements to identify provisions that fail to comply with the requirements of 409A and to correct those plan provisions promptly. Only certain types of document failures are eligible for relief and include, but are not limited to, the following:

•	Correction of failure to properly define applicable permissible payment events
•	Correction of an impermissible payment period following a permissible payment event
•	Correction of certain impermissible payment events and payment schedules
•	Correction of failure to include 6 month delay for Specified Employees
•	Correction of provisions for impermissible initial and subsequent deferral elections

As we have more time to study and digest this Notice, more information will be forthcoming, but at first blush the mechanics of the relief program can be confusing and difficult to understand, but not taking corrective action will result in significant financial penalty, in many cases, to unwitting plan participants. It is also important to remember that generally speaking the relief applies to failures that are inadvertent and unintentional. We strongly encourage all plan sponsors to take quick action to review their plan documents even if they have previously made a good faith attempt at compliance. Early correction is important not only because the relief is generally not available once the taxpayer is under audit, but also because some of the relief under the Notice is time sensitive. Please contact us if you feel we can be of assistance in any way.
The full notice is available here.

AALU's Washington Report 09-129, Purchasers of BOLI Policies Are Entitled To Loss Deductions Under IRC Section 165 On Surrender of Policies.
The Internal Revenue Service has ruled, in PLR 200945032, that two banks that surrendered bank-owned life insurance (BOLI) policies to the insurance companies at a time when the surrender value of the policies had declined may deduct losses on the policies under section 165 of the Internal Revenue Code (relating to losses not compensated by insurance). However, no portion of any such loss, of which there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, will be allowed until the taxable year in which it can be ascertained with reasonable certainty that such reimbursement will or will not be received. A copy of AALU's Washington Report 09-129 is now available in our tax resources section. You can view the report here.

AALU's Washington Report 09-48, Estate of Deceased Bank Employee Brings Class Action Lawsuit Against Citibank for Proceeds of BOLI Policies
Daniel Barofsky, the husband and representative of the estate of Karen Barofsky, who was a Citibank customer service representative until her death in April 2007 from metastasizing lung cancer, brought suit within the past month against Citibank for the proceeds of a bank-owned life insurance allegedly purchased by the bank on his wife’s life. Barofsky claims that Citibank had no insurable interest in his wife’s life under South Dakota law, which is said to be similar to the laws in a number of other states, including Nevada, where Citibank’s headquarters are located. Barofsky also seeks certification of a class consisting of the estates of all deceased Citibank employees in those states. A copy of AALU's Washington Report 09-48 is now available in our tax resources section. You can view the report here.

AALU's Washington Report 09-44, Limitations on Terminating and Otherwise Changing Nonqualified Deferred Compensation Arrangements Subject to Code Section 409A
For various reasons, the current economic downturn is causing many employers and executives to reconsider their nonqualified deferred compensation arrangements. To the extent those arrangements are subject to Revenue Code section 409A, there are significant limitations on an employer's ability to terminate and liquidate such arrangements. In addition, in many, if not most, cases there may be no viable options for terminating and liquidating a 409A arrangement either: (i) because the parties cannot or do not want to satisfy all of the requirements (e.g., terminating all arrangements of the same type) or (ii) because of uncertainties about whether all of the conditions can actually be satisfied (e.g., whether a termination or liquidation is not proximate to a downturn in the financial health of the employer). If all of the conditions are not satisfied, any liquidating distributions would be in violation of 409A and all arrangements that are required to be aggregated would be treated as violating 409A, which generally would result in significant adverse tax consequences to the participants. This Washington Report describes those limitations and discusses the options that may be available for terminating and making other changes to such arrangements. A copy is available in our 409A section.

AALU's Washington Report 09-12, Additional Analysis of Proposed 409A Income Inclusion Regulations
This past December the government issued Proposed Treasury Regulations Section 1.409A-4 ("Proposed Regulations"), which address the calculation of amounts includible in income and the additional taxes imposed if the requirements of Revenue Code section 409A are not satisfied. (See our Bulletin No. 08-108.) As promised in that Bulletin, this Washington Report provides a more detailed analysis of the Proposed Regulations. A copy is available in our 409A section.

AALU''s Washington Report 09-09, Additional Analysis of IRS Notice 2008-113 - Updated and Expanded 409A Correction Procedures
In December 2008, the Internal Revenue Service issued Notice 2008-113 (see our Bulletin No. 08-108), which updates and expands the initial section 409A correction guidance issued in December 2007 (IRS Notice 2007-100; see our Bulletin No. 07-111). Although this new notice significantly expands the types of operational violations that can be corrected and the relief available, it does not permit plan documents or form defects to be corrected. However, Notice 2008-113 explains that the Revenue Service is considering expansion of the correction procedures to cover certain plan document failures. The Service further requests specific comments regarding the potential terms and conditions of such a program. As promised, this Washington Report provides a more detailed analysis of the Notice 2008-11 3 new correction procedures. A copy is available in our 409A section.

IRS to Waive 2008 Deferred Comp Code Y Reporting
The U.S. Internal Revenue Services (IRS) will issue a waiver for Code Y reporting requirements for amounts deferred under Section 409A for nonqualified deferred compensation plans. The requirement will be waived for 2008 and until formal regulations are issued on how to calculate the amount to be included in income, says U.S. Treasury Deputy Benefits Tax Counsel Helen Morrison. The Treasury also will issue regulations for how to calculate the amount if the plan fails to meet 409A requirements. All plan documents and final elections must be completed in writing by the end of the year, and the plan document must specify time, form of payment, and when payment will be made, according to Section 409A. Elections must be in writing and comply with regulations, and public companies are required to allow a six-month delay in payment in cases of employee dismissal. From Plan Adviser.com (10/27/08) Schneyer, Fred

Washington Report 08-80, Full Compliance with the Final 409A Regulations Required by the End of 2008.
All nonqualified deferred compensation arrangements that are subject to Internal Revenue Code section 409A must be in full compliance by the end of 2008 with the final regulations under that section. With less than four months remaining in 2008, plan sponsors that are not in full compliance should take action now to ensure that they can be fully compliant by the end of the year. This Washington Report will summarize the new rules and that required action. It also alerts Members to two additional AALU resources to assist with the 409A compliance requirements - (1) a Nonqualified Plan Webinar on Wednesday, September 17, 2008 at 2 PM ET presented by top practitioners Michael Goldstein, Marla Aspinwall and Stuart Lewis entitled "Section 409A: What Your Clients May Be Missing;" and (2) an article by Marla Aspinwall and Michael Goldstein entitled "Section 409A - What Your Clients Need to Know Before 2009," which appears in the Summer 2008 issue of The AALU Quarterly. (See also Washington Reports Nos. 08-34, 07-106, 07-94, 07-66, 07-50, 07-48, 07-44, 07-41 and 07-38.) A copy of AALU's Washington Report 08-80 is now available in our 409A section. You can view the report here.

Washington Report 08-61, Court Holds That Employer has the Right to Terminate Top-Hat Plan, Including Split-Dollar Life Insurance Policy, Despite Promises Made to Executive.
The Second Circuit Court of Appeals, in Paneccasio v. Unisource Worldwide, __ F.3d. __ (2d. Cir., July 7, 2008), recently held that an employer was allowed to terminate its top-hat deferred compensation plan and split-dollar life insurance arrangement for an executive six months before he reached retirement. The executive alleged that, due to certain promises made to him, the company had guaranteed his entitlement to the retirement and life insurance benefits at age 65. AALU's Washington Report 08-61 is available here.

Washington Report 08-52, Valuation of Life Insurance Policy Separate Accounts for Financial Reporting Purposes.
Current audit interests in the valuation of separate account COLI and BOLI policies is raising potentially difficult accounting issues which may generate future problems not yet fully foreseeable. A copy of AALU's Washington Report 08-52 is now available in our accounting section. You can view the report here.

Washington Report 08-50, IRS Denies Refund of FICA Taxes Where Promised Nonqualified Deferred Compensation Payments Are Not Made
The Internal Revenue Service recently released a Chief Counsel Memorandum, CCM 200823001, that addresses whether retired employees, who did not receive promised nonqualified deferred compensation benefits because of the bankruptcy of the employer, were entitled to refunds of their FICA taxes paid on those benefits. The Memorandum also deals with the determination of the appropriate period during which an employee can, in general, claim a refund of FICA taxes paid. A copy of AALU's Washington Report 08-50 is now available in our FICA section. You can view the report here.

Washington Report 08-48, Banks Sue Insurance Company and Consulting Firm for Losses on BOLI Policies
In an action filed in the U.S. District Court for the Southern District of Ohio on April 17, 2008, Fifth Third Bank of Ohio and Fifth Third Bank of Michigan (collectively “Fifth Third”) have sued Transamerica Life Insurance Company (“Transamerica”) and Clark Consulting, Inc. (“Clark”) to recover damages of $323 million allegedly incurred in connection with bank owned life insurance (“BOLI”) products. The BOLI policies, which were said to be issued by Transamerica and with respect to which Clark allegedly offered consulting services, were invested in hedge funds that lost hundreds of millions of dollars in the sub-prime mortgage markets. Fifth Third alleges that Transamerica and Clark have engaged in breach of contract, breach of fiduciary duty, fraud, professional negligence, negligent misrepresentation and insurance bad faith. AALU's Washington Report 08-48 is available here.

The Importance of Plan Admin
The Pangburn Group's quarterly newsletter, containing the lead article: The Importance of Plan Admin is now available for viewing.

Washington Report 08-31, Changes to Split-Dollar Arrangements That Do Not Change the Insurance Contract Do Not Cause Loss of Grandfather Treatment Under Sections 101(j) and 264(f)
The Internal Revenue Service recently issued a notice stating that changes to a split-dollar arrangement that do not change the life insurance contract will not cause loss of grandfather treatment under either sections 101(j) or 264(f) of the Code. AALU's Washington Report 08-31 is available here.

Nonqualified Deferred Compensation Plans - Why Administration Matters
Nonqualified Deferred Compensation (NQDC) Plans have been a very popular mechanism for providing supplemental benefits to an organization’s key executives. Their popularity has been increasing over the past few years, due mainly to the constantly expanding limitations on benefits that may be provided through Qualified Plans. According to the Department of Labor, between 1975 and 2007, U.S. companies have established over 96,000 NQDC plans covering over 1,478,000 participants. Plan popularity can also be attributed to companies desiring to “lock in” their key employees for competitive reasons, as well as flexibility in plan design and the ability to provide benefits for only a select group. You can read the full article here. A copy is available in our articles section.

Preparing for the Code section 409A Compliance Deadline
The extension for amending plans for compliance with Code section 409A and the final regulations thereunder under Notice 2007-86 does not mean that companies or individuals should wait to address these issues until later this year. Read more here.

Analysis of Internal Revenue Code 101(j)
AALU's Washington Report 08-22 contains a review of Internal Revenue Code Section 101(j), which covers rules for the taxation of employer-owned life insurance. You can read the report here.

Plan Qualifies as a Top-Hat Plan Under ERISA
First Circuit Court of Appeals, ... recently decided that an employer’s deferred compensation plan constituted a top-hat plan under ERISA. You can read the full brief here.

Washington Report 08-07, Exchange of Corporate-Owned Life Insurance Policies For Individual Policies Will Be Tax-Free Under IRC §1035
In PLR 200801001, the Revenue Service ruled that a corporation’s proposed exchanges of certain certificates issued under a group policy and certain individual COLI policies for individual, separate account COLI policies with respect to currently active employees will be tax-free under Section 1035 of the Internal Revenue Code. Further, the basis and the investment in the contract of the newly issued contracts will be the same as that of the contracts for which they were exchanged. A copy of AALU's Washington Report 08-07 is now available in our tax resources section. You can view the report here.

Washington Report 08-06, IRS Issues COLI Reporting Form
The Internal Revenue Service recently released the new COLI reporting form (Form 8925) that is required to be filed by policyholders (i.e., employers) that own “employer-owned life insurance contracts”). The form itself contains the instructions. A copy of AALU's Washington Report 08-06 is now available in our tax resources section. You can view the report here.

Washington Report 07-111, IRS Releases Limited Correction Program for Section 409A Violations
The IRS recently released its long-awaited correction program under section 409A. In its current form, the correction program is very limited as to the types of corrections that can be fixed under this program. AALU's Washington Report 07-111 is available in our 409A section. You can view the report here.

Washington Report 07-109, Additional Analysis of IRS Guidance On 2007 Reporting and Withholding Under Code Section 409A.
The deferred compensation rules under Revenue Code section 409A impose new reporting and withholding requirements that were effective with respect to amounts deferred on or after January 1, 2005. In IRS Notices 2005-94 and 2006-100 (see our Bulletins Nos. 05-127 and 06-143), the Revenue Service provided relief and guidance for complying with the reporting and withholding requirements for 2005 and 2006. The IRS recently issued Notice 2007-89 (see our Bulletin No. 07-96), which provides guidance for complying with the reporting and withholding requirements for 2007. This Bulletin provides a more detailed discussion of Notice 2007-89.

Washington Report 07-106, IRS Notice 2007-86 - Extension of 409A Compliance Deadline and Transition Rules - Additional Analysis
As reported in our Washington Report No. 07-94, the Internal Revenue Service issued Notice 2007-86, which extends the deadline for complying with the final Code section 409A regulations and the transition rules for one full year - until December 31, 2008. Notice 2007-86 revokes and supersedes the limited Notice 2007-78 "extension.” The earlier Notice provided an extension only with respect to certain documentation requirements -- the transition rules were not extended and plans had to be operationally compliant with the final regulations no later than January 1, 2008. (See our Bulletins Nos. 07-83 and 07-81.) In response to various efforts by AALU and others, Notice 2007-86 effectively implements a full one-year extension of the compliance deadline and transition rules through December 31, 2008. We here offer a detailed analysis of that extension and its ramifications. A copy of AALU's Washington Report 07-106 is now available in our 409A section. You can view the report here.

Washington Report 07-96, IRS Issues Notice on Reporting and Withholding Under Code Section 409A
Following the pattern established last year with Notice 2006­100, the IRS has issued a Notice regarding the reporting and withholding guidelines under section 409A for 2007.
In general, the Notice exempts employers from having to report in 2007 the amount of deferrals (that are not subject to tax under section 409A) that occur in 2007. Under the statutory provisions of section 409A, employers will at some point be required to report (on Form W­2, for example), not only the taxable amounts in deferred compensation plans but also the (nontaxable) amounts that are deferred each year. Because the IRS has not issued sufficient guidance in this area, the IRS started (with Notice 2006­100) postponing these requirements and has continued to do so with Notice 2007­89. A copy of AALU's Washington Report 07-96 is now available in our 409A section. You can view the report here.

Washington Report 07-94, IRS Notice 2007-86 Extension of 409A Deadline
As previously reported, the IRS extended part of the deadline for complying with the 409A regulations. That extension only applied to documenting compliance with the final regulations on deferred compensation. At the urging of AALU and other organizations, the IRS has now generally extended the deadline for full compliance with these regulations until the end of 2008. After a more thorough review of Notice 2007-86, AALU will provide a detailed analysis of the guidance in a future Washington Report. AALU's Washington Report 07-94 is available here.

TPC Consulting Completes SAS 70 Type II Audit
TPC Consulting, a fee-for-service TPA of Bank Owned Life Insurance (BOLI), today announced that it has successfully completed an American Institute of Certified Public Accountants (AICPA) SAS 70 Type II examination conducted by DuPont & Morgan, LLP. The full press release is available here.

Treasury, IRS Extend Documentation Deadline for 409A Compliance
The Treasury Department and the Internal Revenue Service (IRS) announced today that taxpayers will have until December 31, 2008 to bring documents into compliance with the final nonqualified deferred compensation regulations under section 409A of the Internal Revenue Code. In April, Treasury and IRS issued final 409A regulations, which provided guidance regarding the requirements for deferral elections and payment timing under section 409A. Affected plans and arrangements were required to comply with the final regulations by December 31, 2007. IRS Notice 2007-78 extends the document compliance deadline for one year and provides additional limited transition relief, but does not extend the January 1, 2008 effective date of the final regulations.

Washington Report 07-72, Technical Corrections to Section 409A Regulations
The Internal Revenue Service recently released the correcting amendments to the final regulations under section 409A of the Revenue Code. A few weeks ago the IRS had released correcting amendments to the preamble to those regulations.

TPC Consulting Introduces The Pangburn Group and New Web Portal
The Pangburn Company, a fee-for-service third party administrator (TPA) of nonqualified executive benefit plans and its strategic partner, TPC Consulting, a fee-for-service TPA of Bank Owned Life Insurance (BOLI), today announced that they will begin operating jointly under “THE PANGBURN GROUP.” As a central part of this venture, they have created a new web portal at pangburngroup.com. The full press release is available here.

AALU Washington Report Bulletin 07-60
"AALU Washington Report 07-60 is now available for download. The subject of this issue is: If Taxpayer Exchanges Multiple MECs for New Contracts Issued by Different Insurance Company, New Contracts Need Not Be Aggregated With Remaining Old Contracts. This, along with other articles is available in our tax resource area. "

Accounting Standard Provides Greater Flexibility for Informally Funded Nonqualified Plans
"We have provided a link to an article on FAS 159, entitled New Accounting Standard Provides Greater Flexibility for Informally Funded Nonqualified Plans. It was written by Buck Consultants, and the permanent link can be found in our accounting section."

AALU Washington Report Bulletin 07-44
We've made available a copy of the AALU's Washington Report, Additional Analysis of Final 409A Regulations, which was released on April 28, 2007.

409A Final Regulations
"The Treasury Department and the IRS today issued final regulations on the treatment of nonqualified deferred compensation plans and arrangements under section 409A of the Internal Revenue Code. "

AALU Washington Report Bulletin 06-107
AALU bulletin 06-107 reports that the "EITF Adopts Consensuses on (1) Split-Dollar Life Insurance/Post-Retirement Liability and (2) Capitalization of Assets under FASB Technical Bulletin 85-4". You can download the bulletin from our Tax Information Section

AALU Washington Report Bulletin 06-70
A copy of AALU's Washington Report 06-70 is now available in the Accounting section of our resources area. You can view the new report here.

409A Self Diagnostic Guide for Employers
"The following BNA article is available for download locally:
""How Does Section 409A Affect My Company? A Self-Diagnostic Guide for Employers""
Reproduced with permission from BNA Pension & Benefits Daily, Vol. 5, No. 198 (Oct. 14, 2005). Copyright 2005 by The Bureau of National Affairs, Inc. (800-372-1033)"

AALU Washington Report Bulletin 05-106
AALU's Washington Report 05-106 provides a more detailed overview than the previous 05-99 bulletin. Both cover the second round of guidance issued for IRC 409

AALU Washington Report Bulletin 05-99
AALU's Washington Report 05-99 provides a brief overview of the second round of guidance issued for IRC 409A.

Second Round of Guidance for IRC 409A
The second round of guidance with respect to IRC 409A has been released today. A PDF file is available from our Tax Information section.

OCC Interpretative Letter 1030
The OCC issued Interpretative Letter 1030 which concludes that a national bank may may hold a separate account BOLI instrument that hold instruments with characteristics of debt securities and bear a rate of return that is partially linked to equity securities. Interpretive Letter 1030 is also available in our Resources section.

OCC Interpretative Letter 1031
"The OCC issued Interpretative Letter 1031 which concludes that a national bank may establish and act as a trustee for a Rabbi Trust and that the trust may hold investments beyond those allowed for national Banks. Interpretive Letter 1031 is also available in our Resources section. "

New BOLI Regulations
New BOLI regulations went into effect on December 7th. The pronouncement, the Interagency Letter and the FASB No. 5 documents are all available in our Resources Section