The DB and NDCP funding conundrum

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By Dominick Pizzano | 31 December 2010

Internal Revenue Code section 409A(b)(3) of the Pension Protection Act of 2006 (PPA) creates a mandatory funding connection between a plan sponsor's defined benefit (DB) plan and any nonqualified deferred compensation plan (NDCP) it maintains. Sponsors are prohibited from "funding" an NDCP for certain highly-paid employees if circumstances arise that either actually or potentially jeopardize their DB plan's funding status. In the absence of clarifying guidance, the rule leaves a number of questions unanswered. Sponsors should examine their DB plans' funding status and future funding strategies as soon as possible to avoid potential 409A noncompliance.