The preamble to the 409A proposed regs say that a split dollar arrangment is not subject to 409A if it provides "only death benefits." What if the arrangment also provides for the payment of the underlying policy's cash value upon termination of the agreement and/or cancellation of the policy? Does this blow the exception?

If the only benefit available to the employee is a death benefit paid to his beneficaries there is no deferred comp. Any other cash benefits that are available may be taxed under either 409A or the applicable IRS regulations for taxation of split dollar ins depending on who owns the policy. You need to consult a tax advisor to determine if the cash value will be subject to 409A.