The deadline is rapidly approaching for amending nonqualified deferred compensation plans subject to Internal Revenue Code Section 409A to reflect certain transition relief provisions provided by IRS Notice 2005 1. If your plan has taken advantage of any of the following forms of transition relief, it must be amended by December 31, 2005.

• Termination of the Plan in 2005 – Notice 2005-1 allows a plan to be terminated without such termination being treated as a material modification (and without adverse implications under Section 409A) provided that all the amounts deferred under the plan are distributed in 2005 and included in the participants' 2005 taxable income and that the plan is amended by December 31, 2005.
• Notice 2005-1 allows a plan to be terminated without such termination being treated as a material modification (and without adverse implications under Section 409A) provided that all the amounts deferred under the plan are distributed in 2005, included in the participants' 2005 taxable income, and that the plan is amended by December 31, 2005.
• Termination of Plan Participation or Cancellation of Deferrals in 2005 – Notice 2005-1 allows a participant to terminate participation in a plan or cancel a 2005 deferral election without causing the plan to fail to conform to the requirements of Section 409A as long as the plan is amended by December 31, 2005 and the amounts subject to the termination or cancellation are includible in the participant's 2005 income or the income in the taxable year in which the amounts are earned and vested.
• Special Rule for Deferrals Elected in 2005 – Notice 2005-1 allowed a plan earlier this year to extend the deadline for deferral elections (until March 15, 2005) related to compensation for 2005 services, provided that (1) the amounts to which the deferral election related had not been paid or had not become payable at the time of the election; (2) the plan under which the election was made was in existence on or before December 31, 2004; (3) the elections were made in accordance with the terms of the plan in effect on or before December 31, 2005; and (4) the plan was and is operated in compliance with Section 409A and is amended accordingly by December 31, 2005.

If these amendments are not properly in place by December 31, 2005, the plan may fail to qualify under Section 409A, resulting in the possibility of current income tax to the participants, as well as a 20% additional tax plus interest.