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DOL Rolls Out Public Search Engine for Top-Hat Plan Statements

Top-Hat plans are unfunded plans for a select group of management or highly compensated employees that are exempt from a number of ERISA provisions (such as reporting, funding, testing, and certain fiduciary obligations).  In order to ensure that a plan is exempt from those provisions of ERISA, a plan sponsor must file a one-time “top-hat statement” with the Department of Labor within 120 days of the plan’s effective date.

The Department of Labor has rolled out a top-hat plan statement search engine, which is available to the public generally.  The engine is searchable by looking up employer names, plan names, and/or employer identification numbers (EINs).  Sponsors of top-hat plans that have previously filed a statement should consider searching the database to ensure that the statement shows up in the Department of Labor’s records.  If a statement is not found for a plan, review internal records for filing confirmations previously received.

If a top-hat statement has not been timely filed, an application may be made to the Department of Labor’s Delinquent Filers Voluntary Compliance Program to correct the error.

Benefit Plan Disclosure affected by SEC Staff Compliance and Disclosure Interpretations of Proxy Rules and Schedules 14A/C

The SEC staff regularly publishes “Compliance and Disclosure Interpretations” (C&DIs) on various securities matters. Recently, the staff issued new C&DIs related to the SEC’s proxy rules. Previously, the interpretations relating to proxy rules were contained in a “Manual of Publicly Available Telephone Interpretations” which had not been updated since 1999. Included in the new C&DIs are interpretations that affect compensation and benefit plan disclosure in proxy statements filed on Schedule 14A. Most of the new compensation and benefit plan related C&DIs continue the prior Telephone Interpretations, but the following C&DI includes a new substantive interpretation:

  • C&DI Question 161.03: If a registrant is required to disclose the New Plan Benefits Table called for under Item 10(a)(2) of Schedule 14A, the table should list all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is “0”. Alternatively, the registrant may choose to use a narrative disclosure accompanying the New Plan Benefits Table to identify any individual or group for which the award and benefit information to be reported is “0”. [This continues the prior Telephone Interpretations as to the requirement to list in the New Plan Benefits Table all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is “0”. The option to use a narrative disclosure is a new interpretation.]

The following compensation and benefit plan C&DIs continue the staff’s prior interpretations that were included

Changes to Executive Compensation: The Tax Cuts and Jobs Act’s Impact on Section 162(m)

On December 22, 2017, President Trump signed the bill popularly referred to as the “Tax Cuts and Jobs Act” (the “Act”) into law.  The Act contains significant changes to Section 162(m) of the Internal Revenue Code that are effective for taxable years beginning after December 31, 2017. In this article, we provide a summary of the changes to Section 162(m) and suggest planning considerations for publicly held corporations.

Summary of Changes to Section 162(m)

Among other changes to Section 162(m), the Act eliminated the performance-based compensation exception to the $1 million deduction limitation under Section 162(m).  The Act amended the scope of the covered employees, corporations, and compensation for purposes of the $1 million limitation on the deduction for compensation paid to certain employees under Section 162(m). The changes to Section 162(m) include the following:

  • Eliminating the performance-based compensation and commission exceptions from compensation subject to Section 162(m). Under the prior rules of Section 162(m), performance-based compensation and commission were excluded from the $1 million deduction limitation. This change means that a corporation’s compensation committee no longer will be required to establish objective performance goals within 90 days of the start of an applicable performance period and that shareholder approval of the compensation terms and maximum amounts payable no longer is required for Section 162(m) purposes.
  • Expanding the definition of publicly held corporations to include corporations that file reports under Section 15(d) of the Securities Exchange Act of 1934, as amended, which will subject certain

The Good, the Bad, and the Tax-Exempt Organization: The New Tax Bill’s Effect on Benefits and Compensation Offered by Institutions of Higher Education

On December 22, President Trump signed “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (“Bill”) into law. The Bill was previously named the much-shorter “Tax Cuts and Jobs Act,” but was changed after a senator pointed out that the name violated an obscure Senate rule.

The new employee benefit and executive compensation provisions in the Bill affect both individuals and employers. The good news for colleges and universities is that the harshest employee benefit provisions directed at colleges and universities were not included in the final Bill. The bad news is that the executive compensation and fringe benefit changes directed at tax-exempt organizations are unfavorable to institutions of higher education.

THE GOOD: CHANGES EXCLUDED FROM THE FINAL BILL

The House passed a version of the Bill that would have repealed the exclusion from income for qualified tuition reductions provided by educational institutions to (i) employees and their spouses or dependents and (ii) graduate teaching assistants.  The House’s version of the Bill also eliminated the exclusion for education assistance (up to $5,250 per year per employee) that was available to all employers.

Fortunately, both of these changes were eliminated in the final Bill.

THE BAD: EXCISE TAX ON EXCESS COMPENSATION PAID TO COVERED EMPLOYEES

The Bill places a 21% excise tax on the amount of annual compensation in excess of $1,000,000 paid to covered employees of most tax-exempt organizations, including tax-exempt institutions of higher education.

Covered

Code Section 409A…Here Today but Possibly Gone Tomorrow and Other Proposed Changes in the Tax Cuts and Jobs Act

Last week the House unveiled its tax overhaul plan, the Tax Cuts and Jobs Act (“Act”).  The Act’s proposals related to employee benefits and compensation are as follows:

Nonqualified Deferred Compensation

Perhaps one of the most talked about aspects of the Act (at least among benefits practitioners) is the demise of Code section 409A and the creation of its replacement, Code section 409B.

Under the proposed Code section 409B regime, nonqualified deferred compensation would be defined broadly to include any compensation that could be paid later than the March 15 following the taxable year in which the compensation is no longer subject to a substantial risk of forfeiture, but with specific carve-outs for qualified retirement plans and bona fide vacation, leave, disability, or death benefit plans.  Stock options, stock appreciation rights, restricted stock units, and other phantom equity are included expressly in the definition of nonqualified deferred compensation.

All nonqualified deferred compensation earned for services performed after 2017 would become taxable once the substantial risk of forfeiture no longer exists, even if payment of the compensation occurs in a later tax year.  As a result:

  • Stock options and stock appreciation rights would become includible in income in the year in which the award vests, without regard to whether they have been exercised.
  • An employee’s deferral of any salary under a nonqualified deferred compensation arrangement until separation from service or otherwise would result in the inclusion of such amount in the employee’s income in the year earned.
  • All salary

Just Push Pause: Revisiting Proposed Regulations

On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“).  The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office.  In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.

TimeoutThe Regulatory Freeze

The two-page Freeze Memo requires that:

  1. Agencies not send for publication in the Federal Regulation any regulations that had not yet been so sent as of January 20, 2017, pending review by a department or agency head appointed by the President.
  2. Regulations that have been sent for publication in the Federal Register but not yet published be withdrawn, pending review by a department or agency head appointed by the President.
  3. Regulations that have been published but have not reached their effective date are to be delayed for 60 days from the date of the Freeze Memo (until March 21, 2017), pending review by a department or agency head appointed by the President. Agencies are further encouraged to consider postponing the effective date beyond the minimum 60 days.

Putting a Pin in It: Impacted Regulations

We have previously discussed a number of proposed IRS regulations which have not yet been finalized.  These include the proposed regulations to

Good News! New 409A Regulations (Yes, Really!) – Part 5: If it Ain’t Broke, Don’t Fix It (and Other Minor Changes)

Good NewsOn the TV show Futurama, the aged proprietor of the delivery company Planet Express, Professor Hubert J. Farnsworth, had a habit of entering a room where the other characters were gathered and sharing his trademark line, “Good news, everyone!”  Of course, his news was rarely good.  More often, it was the beginning of some misadventure through which the other characters would inevitably suffer, often to great comedic effect.  So we can forgive you for thinking that we may be standing in his shoes when we tell you that new 409A regulations are good news, but really, hear us (read us?) out.

The IRS released proposed changes to both the existing final regulations and the proposed income inclusion regulations.  And the news is mostly good.  Additionally, taxpayers can rely on the proposed regulations.

The changes are legion, so we are breaking up our coverage into a series of blog posts. This last in our series is about the changes to the proposed income inclusion regulations and the other minor changes and clarifications made by the regulations.  See our prior posts, “Firing Squad,” “Taking (and Giving) Stock,” “Don’t Fear the (409A) Reaper,” and “Getting Paid.”

Preventing Waste, Fraud, and Abuse (Okay, well, mostly just abuse). The only change to the proposed income inclusion regulations was to “fix” the anti-abuse rule that applied

Good News! New 409A Regulations (Yes, Really!) – Part 4: Getting Paid

Good NewsOn the TV show Futurama, the aged proprietor of the delivery company Planet Express, Professor Hubert J. Farnsworth, had a habit of entering a room where the other characters were gathered and sharing his trademark line, “Good news, everyone!”  Of course, his news was rarely good.  More often, it was the beginning of some misadventure through which the other characters would inevitably suffer, often to great comedic effect.  So we can forgive you for thinking that we may be standing in his shoes when we tell you that new 409A regulations are good news, but really, hear us (read us?) out.

The IRS released proposed changes to both the existing final regulations and the proposed income inclusion regulations.  And the news is mostly good.  Additionally, taxpayers can rely on the proposed regulations.

The changes are legion, so we are breaking up our coverage into a series of blog posts. This fourth in our series is about payment-related changes.  See our first three posts, “Firing Squad,” “Taking (and Giving) Stock,” and “Don’t Fear the (409A) Reaper.” Check back for one more post on these regulations.

What’s a Payment?  That’s not merely a philosophical question.  The current regulations use “payment” a great many times, but without definition.  The proposed regulations state that a payment, for 409A purposes, is generally made when a taxable benefit

Good News! New 409A Regulations (Yes, Really!) – Part 3: Don’t Fear the (409A) Reaper

Good NewsOn the TV show Futurama, the aged proprietor of the delivery company Planet Express, Professor Hubert J. Farnsworth, had a habit of entering a room where the other characters were gathered and sharing his trademark line, “Good news, everyone!”  Of course, his news was rarely good.  More often, it was the beginning of some misadventure through which the other characters would inevitably suffer, often to great comedic effect.  So we can forgive you for thinking that we may be standing in his shoes when we tell you that new 409A regulations are good news, but really, hear us (read us?) out.

The IRS released proposed changes to both the existing final regulations and the proposed income inclusion regulations.  And the news is mostly good.  Additionally, taxpayers can rely on the proposed regulations.

The changes are legion, so we are breaking up our coverage into a series of blog posts. This third post is about the death benefit changes.  See our first two posts, “Firing Squad” and “Taking (and Giving) Stock.” Check back for future posts on these regulations.

Accelerated Payments for Beneficiaries. 409A generally allows plans to add death, disability, or unforeseeable emergency as potentially earlier alternative payment dates.  However, this special rule only applied to the service provider.  If the service provider dies, then the payment schedule applicable on the service provider’s death

Cautionary Observations from the Proposed 457 Regulations

Governmental Buildings and MoneyAfter more than nine years of deliberations, the IRS has finally released proposed regulations governing all types of deferred compensation plans maintained by non-profit organizations and governmental entities.

In issuing these regulations, the IRS reiterates its long-standing theme that these regulations are intended to work in harmony with, and be supplemental to, the 409A regulations. However, the IRS provides little guidance on how these regulations interact with each other.  The following discussion focuses on 3 key aspects of the new guidance: the severance exemption, the substantial risk of forfeiture requirement, and leave programs.

As with the 409A regulations, the 457 regulations exempt severance pay plans from the rules and taxes applicable to deferred compensation. The 457 regulations apply similar criteria with one notable exception: they do not apply the 401(a)(17) compensation limit in determining the “two times” dollar cap on amounts that can be paid pursuant to an exempt severance pay plan.  Practitioners in the for-profit arena currently believe they enjoy wide latitude in restructuring severance arrangements that are exempt from 409A.  It would not appear that practitioners will have that same latitude for severance arrangements that are exempt from 457, unless the arrangements also satisfy the severance pay exemption under 409A, particularly with regard to the dollar cap limit.

Historically, the proposed 457 rules afforded

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