The IRS and Treasury today issued proposed regulations governing non-qualified deferred compensation plans.

Here are the highlights:

  • employees cashing out early must withdraw entire amount
  • early withdrawals subject to interest and additional 20% tax
  • stock appreciation rights (“SARs”) exempt if granted at fair market value
  • broad-based plans of non-U.S. companies operating in U.S. are exempt
  • severance for fired employees capped at 2x annual salary
  • maximum severance of $420,000 (indexed for inflation)
  • deadline for compliance extended until 12/31/06
  • effective date for regulations is 1/1/07

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