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October 11, 2012

2012 Year-End Section 409A Correction Opportunities

Arnold & Porter Advisory

Although the initial Section 409A compliance crush is now long past, Section 409A remains an ongoing area of compliance focus for employers in light of its complexity and the potentially severe penalties that apply in the event of compliance failures. To help manage Section 409A compliance risk, employers can take advantage of a number of possible opportunities to self-correct Section 409A violations and avoid penalties. Because some of these opportunities are only available, or available on a more favorable basis, if the violation is identified and corrected by the end of 2012, undertaking a year-end self-audit of Section 409A-covered plans and agreements can be a useful strategy for minimizing Section 409A noncompliance exposure.

Discussed below are two alternatives for correcting certain Section 409A violations this year: (1) Section 409A violations arising in connection with deferred compensation that will remain wholly unvested through year-end 2012, and (2) Section 409A violations arising in connection with payments conditioned upon the execution of a release of claims.

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