Just as ignoring the seer's warning to Beware the Ides of March led to Julius Caesar's demise on that fateful March 15, employers with calendar fiscal years must be wary of this date. Otherwise, when they distribute their bonuses, they may find the payments falling victim to a similarly highly undesirable outcome—becoming subject to Internal Revenue Code Section 409A. It is true that 409A, the now infamous rule that so strictly regulates the time and form of payment of nonqualified deferred compensation, includes a helpful exemption for short-term deferrals. However, to qualify for this get out of 409A free card, a payment must be made on or prior to the 15th day of the third month (i.e., March 15 for calendar fiscal years) following the end of the employees (or, if later, the employer s) taxable year in which the bonus amount is no longer subject to a substantial risk of forfeiture (SROF).

Payment of the bonus is considered subject to a SROF if the employees only earn the right to payment once they have completed a specified number of years of service and/or met certain performance goals. Once such conditions are met, employees are considered to be vested in the benefit (i.e., entitled to the payment when it is made regardless of their employment status on the payment date). Employers sometimes add an extra condition by attaching a noncompete restriction under which employees forfeit the bonus if they terminate employment and enter employment with one of the employer's competitors prior to the payment date. However, the inclusion of such a restriction is not recognized by the 409A rules as sufficient to create a SROF.

The following two examples illustrate how these rules are applied to employers with calendar fiscal years. Under the first scenario, the employer awards annual bonuses based on both the employer's financials and the employees individual performances. Payment of the bonus is scheduled to be made in the first quarter of 2015 as soon as administratively practicable following the determination of the amounts. Participants must actually be employed with the employer on the payment date to receive the bonus. Because of this active employment on payment date requirement, the employees never become vested in the benefit until the actual payment date. Therefore, employers with this design need not be concerned about missing the March 15 payment deadline.

In contrast, assume the same facts as the previous example except that in order to receive the bonus payment made in 2015, the employees must be employed on December 31, 2014, and must not violate a noncompete agreement prior to the payment being made. Because 409A does not recognize the noncompete condition, the vesting occurs in 2014. Consequently, in order to avoid 409A coverage, the bonus must be paid by no later than March 15, 2015, unless one of 409A's limited late payment exceptions applies: (1) an unforeseen administrative delay, (2) the need to retain such funds because their disbursement would jeopardize the employer's ability to continue as a going concern, or (3) the employer reasonably anticipating that its deduction of the bonus will be subject to the $1 million Internal Revenue Service (IRS) deduction limit (and the employer did not reasonably anticipate the application of Section 162[m] when the bonus award was originally made). Each of these three exemptions will only be considered valid if the employer promptly makes the delayed bonus payment as soon as the applicable cause for the delay no longer exists.

What happens in the case of a bonus plan where the amounts were vested in 2014, the March 15 payment deadline is missed, and none of the three exemptions are available? Does 409A coverage automatically spell doom in the form of noncompliance and the corresponding penalties? The good news is that it's possible to structure bonus plans so that they comply with the 409A rules. So for any employer that currently has a bonus program that needs to meet the March 15 deadline (i.e., those programs that vest employees in the prior year), it's crucial to examine their current bonus determinations and delivery processes. Does the employer have any intrinsic procedures (i.e., thereby eliminating the unforeseen exemption) that could cause the program to pay bonuses later than March 15 more than just on a one-time accidental basis? If the answer is yes, the employer should consult with its employee benefits specialist to review such bonus programs to make sure it is covered by a compliant 409A document so that even if the payment date is missed and the short-term deferral exemption blown, the bonus payment does not violate 409A, thereby risking the costly consequences of such noncompliance. One does not need to be a seer to know that to do otherwise would tempt the fates of the Ides of March, which history has shown never to be sound policy whether for emperors or employers.