Benefits Bryan Cave

Benefits BCLP

Executive Compensation

Main Content

409A Day Comes a Day Early This Year

As we have noted previously, March 15 is tax “Code Section 409A Day.”  For employers with calendar fiscal years, that is generally the last day an amount can be paid and still qualify as a short-term deferral that is exempt from 409A’s stringent timing and form of payment requirements.  But what does one do when March 15 falls on a weekend, as it does this year?  You likely aren’t cutting payroll checks on a Saturday.  Can you wait until Monday to pay?

The answer is no.  The rules are clear that the payment generally has to be made by the 15th day of the 3rd month (hence, March 15) of the year following the year in which either the right to the compensation arises or the compensation is no longer subject to a substantial risk of forfeiture (and note that for this purpose, the 409A definition is different than the Section 83 definition).  (The deadline can be different if an employer has a non-calendar year fiscal year, but the concept is essentially the same.)

There are a few exceptions.  First, if making the payment by the deadline is administratively impracticable and such impracticability was not reasonably foreseeable when the right to the compensation arose, then payment can be made after the deadline, as long as payment is made as soon as practicable.  Of course, for 2014 it is difficult to argue that the impracticability wasn’t foreseeable simply because you didn’t happen to look into next March

Don’t Miss the April 15th Deadline to File a Protective Refund Claim for 2010 FICA Tax!

As you may recall from our earlier post, the 6th Circuit held in U.S. v. Quality Stores, that severance payments made to employees in connection with an involuntary reduction in force were not “wages” subject to FICA taxes. This decision was contrary to published IRS guidance and created a split in the courts. In October of last year, the United States Supreme Court agreed to review the case and on January 14th, it heard oral arguments. The Supreme Court is expected to issue a ruling by the end of June.

Taxpayers may be entitled to a FICA tax refund if the decision is upheld by the Supreme Court on appeal. In order to preserve the right to a refund, taxpayers must file a protective claim before the applicable statute of limitations runs. As we previously reported in a post last year, the deadline to file a protective order for severance payments made in 2009 was April 15, 2013. At this time, the deadline to file a protective claim for 2010 severance payments is quickly approaching on April 15, 2014. We encourage any employer who made involuntary severance payments in 2010 to consider filing a protective claim now on Form 941-x in order to preserve the right to a refund if the 6th Circuit decision is upheld.

 

Tips and Traps for Taking Current Year Deductions for Bonus Programs Fixed by End of Year

December 20, 2013

Categories

As the tax year end approaches, careful planning for year-end bonus accruals presents an opportunity to accelerate your deduction – don’t accidentally cause deferral. Recent guidance from the Internal Revenue Service provides a roadmap to the latest thinking when claiming deductions for bonus pool accruals. The key take away from Field Attorney Advice Memorandum LAFA 20134301F: scrub compensation committee resolutions approving bonus amounts to remove any possible post-year end discretion to reduce the full bonus pool amount.

This client alert (drafted by Bryan Cave lawyers Chris Welsch, Dan White, and Sarah Sise) discusses the guidance.

Before the Ball Drops for the New Year, Don’t Forget to Address These 2013 Employee Benefit Items!

Qualified Plans

  • If your plans are filed in “Cycle C” for determinations letters (i.e., plan sponsor’s EIN ends in 3 or 8), address items needed for the IRS filing before the end of the year. The filing deadline is January 31, 2014, but notices to “interested parties” must be distributed no later than 10 days before the filing. Set that filing date and prepare the plan restatement before the ball drops.
  • If your company did not timely adopt a written 403(b) plan document, you may qualify for a reduced compliance fee under the IRS’ correction program, but only if the filing is made before the ball drops.
  • Most defined benefit plans have been amended to incorporate the benefit accrual and distribution restrictions that apply if the plan’s funding drops below certain thresholds. These Code Section 436 rules must be added to your defined benefit plan by written amendment before the ball drops if you sponsor a calendar year plan.
  • More detailed information on the above items can be found here.
  • Have your payroll and benefit administration systems been updated to reflect the new qualified plan limits for 2014? The elective deferral pre-tax/Roth limit remains unchanged at $17,500. The limit on compensation taken into account for purposes of calculating maximum contributions and benefits will go from $255,000 to $260,000. The Social Security taxable wage base will go from $113,700 to $117,000.

The Defense of Marriage Act (“DOMA”) – Repeal of Section 3

  • Qualified retirement plans, 403(b) plans

Looking Ahead – ISS 2014 Draft Policies and Proxy Survey Results

Looking Ahead – ISS 2014 Draft Policies and Proxy Survey Results

October 24, 2013

Authored by: benefitsbclp

Looking Ahead – ISS 2014 Draft Policies and Proxy Survey Results

Institutional Shareholder Services (ISS) conducts an annual survey to obtain input on corporate governance issues.  The survey results are considered by ISS in preparing annual updates to its proxy voting policies.  The survey often provides insight into potential ISS policy changes for the upcoming proxy season.

A few weeks ago, ISS released the results of its 2014 proxy voting survey.  ISS received more than 500 responses from institutional investors and corporate issuers located within and outside of the United States.   The 2013-2014 Policy Survey Summary of Results can be accessed here.  This week ISS posted draft 2014 policies for comment here.  The draft policies include proposed changes for U.S. companies to Board Response to Majority-Supported Shareholder Proposals and the ISS Pay for Performance Quantitative Screen.  The comment period will close on November 4, 2013 and ISS anticipates releasing its final 2014 policy updates in November.

Below are highlights of the survey findings and draft policies covering board decision making and executive compensation matters:

1. Board Responsiveness

Last year ISS announced changes to its policy on board responsiveness to majority-supported non-binding shareholder proposals.  The 2014 survey included questions eliciting views on board responsiveness to shareholder mandates and what is a reasonable time-frame for the board’s response.  The survey results included mixed views from investors and issuers as to whether the board should implement a specific action to address the shareholder mandate or should be free

409A – Is Your Compensation Arrangement Subject to These Rules?

The 409A rules do not provide a clear roadmap to determine what compensation arrangements are subject to their regime of requirements and restrictions.  In this brief video, Brian Berglund provides a description of the approach you should take to evaluate whether your compensation arrangement should be structured to comply with the 409A rules regarding deferral elections, timing of payments and other requirements.

(You can also view the video by going here.)

Time to Assess the Independence of Your Compensation Committee’s Outside Counsel and Other Advisers

Among other things, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires a company with securities listed on a national exchange to:

  • Have a compensation committee of independent directors;
  • Provide the committee with authority and funding to retain its own advisers; and
  • Have the committee assess the independence of its advisers (other than in-house counsel) before retaining the adviser or receiving the advice.

As previously announced in our January 29, 2013 client bulletin (available [here]), the NYSE and Nasdaq have adopted rules implementing the Dodd-Frank requirements.

Effective July 1, 2013, under applicable NYSE and Nasdaq rules, the compensation committee is required to consider the independence of its compensation consultant, outside legal counsel and other advisers before selecting or receiving advice from them.  There is no requirement that the committee hire or receive advice from solely independent advisers, only that it consider their independence before selecting or receiving the advice.

The independence assessment requirement is triggered not only when the committee is directly responsible for the appointment and oversight of the adviser, but also potentially when the committee receives advice indirectly from a compensation consultant, legal counsel or other adviser retained by management.

Management and in-house counsel often assist the compensation committee with its responsibilities by providing information and other assistance to the committee.  As part of this process, management may seek guidance regarding best practices, and technical tax or securities law requirements from its compensation consultant or outside counsel.  Based on informal guidance from the SEC staff,

Eighth Circuit Clarifies the Scope of ERISA’s Application to Severance Arrangements

 The Eighth Circuit’s recent decision in Dakota, Minn. & E. R.R. Corp. v. Schieffer (Schieffer II), No. 12-1807, 2013 WL 1235235 (8th Cir. Mar. 28, 2013), offers new insight into the circumstances under which severance benefits provided under an executive’s employment contract are governed by ERISA.  The opinion clarifies that ERISA does not govern contractual obligations in an executive employment contract that are not provided under an ERISA plan and, even where amount of payments are made by reference to the terms of an ERISA plan, the arrangement does not “relate to” an ERISA plan.   Schieffer concerned a dispute over severance benefits after the employer (“DM&E”) terminated its CEO in anticipation of a merger.  Under the employment agreement, DM&E had agreed to continue providing Schieffer benefits for three years following his severance payment.  These benefits, as described in the employment agreement, included “‘all employee health, welfare and retirement benefits plans and programs made available generally to senior executives,’ and, if Schieffer became ineligible to participate, ‘whether by law or the terms thereof,’” DM&E “would make ‘a cash payment equal to’ what it would have contributed if he participated” in the plan.  Id. at *3. Schieffer filed a demand for arbitration, seeking among other things double-damages under a state wage statute that would be preempted if ERISA applied. DM&E responded by filing a declaratory judgment action in federal court to enjoin the arbitration.  The arbitration demand had alleged that DM&E had breached obligations under the employment agreement by (1) terminating

Reminder: Hurry! Opportunity for Possible Refund of FICA Taxes Ends Soon!

As noted in our blog entry on October 16, 2012, under the Sixth Circuit’s discussion in U.S. v. Quality Stores, severance payments made because of an employee’s involuntary separation resulting from a reduction-in-force or discontinuance of a plant or operation are not subject to FICA taxes.  This holding is contrary to a prior decision of the Federal Circuit Court of Appeals and published IRS guidance.  The government has until May 3 to appeal the case to the Supreme Court.  Until a final decision in this case has been rendered, taxpayers that have made severance payments in 2009 should file a protective claim for a FICA tax refund no later than April 15, 2013.  This protective claim will preserve the taxpayer’s right to a refund should the IRS not appeal the decision or should the decision be upheld on appeal.

 

SEC Releases Letter Clarifying Application of Section 402 of Sarbanes-Oxley Act

Last month the SEC issued a no-action letter to a financial services firm that sheds light on the scope of the prohibition under Section 402 of the Sarbanes-Oxley Act of 2002 which makes it unlawful for an issuer to “extend or maintain credit, to arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to or for any director or any executive officer . . . of that issuer.” 

Historically, the SEC appears to have been reluctant to issue formal guidance respecting the parameters of the loan prohibition under Section 402.  Common arrangements left in limbo by this lack of regulatory guidance extend to personal use of company credit cards, personal use of company cars, travel-related advances, and broker-assisted option exercises. 

The SEC’s no-action letter was issued to RingsEnd Partners, a financial services firm.  The letter addresses a program established to facilitate the payment of taxes associated with the grant of restricted stock awards.  Under this program, recipients of restricted stock awards make a qualifying election to be taxed on those shares at the time of grant (a so-called 83(b) election) and then transfer those shares to a trust administered by an independent trustee who is directed to borrow funds from an independent bank through non-recourse loans sufficient in amount to pay the tax liability incurred as a result of the stock awards.  Through this mechanism, recipients of these awards can retain ownership of all shares granted to them rather

The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.