Monthly LRA Update: December 2023

REGULATORY DEVELOPMENT

SEC’s Final “Clawback” Rule – Potential 409A Issues

In October 2022 the SEC adopted final rules stipulating that public companies and certain other companies must adopt clawback policies to recover erroneously awarded incentive-based compensation from its executive officers. Compliant policies are required by December 1, 2023.

The Groom Law Group has written a publication alerting employers and nonqualified plan administrators of potential pitfalls related to Code section 409A that may apply if an entity were to elect to recover incentive-based compensation from nonqualified plan benefits. Groom notes that “… if an executive’s right to deferred compensation is reduced (or otherwise is assigned or pledged) to satisfy a debt to the employer, then the deferred compensation is treated as paid to the executive.” Such an arrangement could trigger 409A penalties.

We encourage readers to review Groom’s publication for more detailed information on this matter.