New deferred compensation agreement creates tax penalty risk

Client Description

A bank that provides debt and equity capital for selected investments, as well as trust services to certain related and unrelated entities and individuals

Problem/Issue

During our audit procedures, BerryDunn identified issues with a new deferred compensation agreement between the bank and the bank’s president. The agreement’s wording threatened the agreement’s compliance with the requirements of Internal Revenue Code Section 409A.

BerryDunn’s Solution/Approach

BerryDunn advisors:

• Developed a detailed solution, including suggesting new language to use when amending the deferred compensation agreement to make it compliant with Section 409A
• Provided guidance on how to document future awards to be compliant with Section 409A

Outcomes

Since BerryDunn stepped in before any of the benefits had vested, the plan was amended without concerns of violating Code Section 409A. BerryDunn saved the bank’s president certain additional taxes, including a 20% penalty tax for violating Code Section 409A.