Pension Protection Act Blog

Trends come and go in writing plan documents. The hottest trend over the last year, especially for non-qualified deferred compensation plans, has been to include a savings clause when writing plan documents or amendments. David E. Morse, of K & L Gates, in a great summary of the Final 409A Regs, describes savings clauses as language inserted into the plan document “along the lines of, ‘Notwithstanding anything else to the contrary, if we goofed and left something out or incorrectly interpreted the rules of IRC Section 409A, the Section 409A rules trump the plan terms’.

In the Final 409A Regs, the IRS states that savings clauses will be disregarded. In the preamble to the Regs, the Service included this paragraph:

Commentators asked whether a savings clause would be sufficient to ensure compliance with section 409A, where the savings clause provides that each provision of the plan will be interpreted to be consistent with the requirements of section 409A and that any provision of the plan that does not satisfy such requirements will be of no force or effect. The final regualtions provide that for purposes of determining the terms of a plan, general provisions of the plan that purport to nullify noncompliant plan terms, or to supply required specific plan terms, are disregarded. Accordingly, if a plan contains terms that do not meet the requirements of section 409A and these regulations, or fails to contain a plan term necessary to meet the requirements of section 409A and these regulations, the plan will violate the requirements of section 409A and these regulations regardless of whether the plan contains such a savings clause.

Treas. Reg. section 1.409A-1(c)(1), reflecting this language from the preamble, states:

For purposes of determining the terms of a plan, general provisions of the plan that purport to nullify noncompliant plan terms, or to supply any specific plan terms required by this section, section 1.409A-2 or section 1.409A-3, are disregarded.

Of course, the very next paragraph of the preamble states that due to the complex and varied universe of deferred compensation plans, the IRS will not be issuing model amendments at this time.

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