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Material modification

An important concept under IRC Section 409A for plans that have grandfathering provisions. This is either a material enhancement in a benefit or right existing in a nonqualified deferred compensation plan as of October 3, 2004, or the addition of a new material benefit or right that affects the amount earned and vested before January 1, 2005. These types of modifications can remove the special status of grandfather provisions, such as a haircut allowed for distributions at any time, and they expose the plan and the previously deferred amounts to all the 409A requirements and penalties.