On January 17, 2007, the Senate Finance Committee approved proposed legislation intended to provide tax relief for those small businesses that will be impacted by the pending legislation to increase the minimum wage. The Committee also approved proposals to offset the cost of these tax relief provisions. One of these proposals would amend the provisions of the tax code applicable to nonqualified deferred compensation arrangements (section 409A) to impose a cap on annual deferrals applicable to each participant in an arrangement that is subject to section 409A. The annual cap would be equal to the smaller of an individual’s “annualized includible compensation” (as defined) or $ 1 million. Actual or notional earnings on deferrals would be taken into account in applying the cap.
The deferred compensation proposal has engendered substantial opposition from business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers, SIFMA, the American Benefits Council and others.