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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

4 Steps for Compliance with the New Disability Claims Procedures

Did you read our post “Work Now, Party Later,” advising you to do just that in response to the new Department of Labor rule governing disability claims procedures? If so—party on! If not, we hope you enjoyed your holiday celebrations, because it is now time to work.

On January 5, the Department of Labor announced its decision that the new disability claims procedure rules will take effect on April 1 of this year. Here is our suggested plan of attack for employers:

Step 1: Review our previous blog post to familiarize yourself with the new rules.

Step 2: Identify which of your plans offer disability benefits.

Remember to check both your ERISA qualified and nonqualified plans.

Step 3. Determine whether you need to amend your plan and/or SPD.

Under the new rules, participants who file a disability claim must receive an expanded explanation of their adverse

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

Termination of a Nonqualified Retirement Plan with a Traditional Defined Benefit Formula

A recent case from a federal court in the Northern District of Georgia provides an interesting perspective on the termination of a nonqualified retirement plan with a traditional defined benefit formula offering lifetime annuity payments. In Taylor v. NCR Corporation et. al., NCR elected to terminate such a nonqualified retirement plan. The termination decision not only precluded new entrants to the plan and the cessation of benefit accruals for active employees, but it also affected retirees in payout status receiving lifetime payments. Those retirees received lump sum payments discounted to present value in lieu of the lifetime payments then being paid to them.

At the time NCR terminated the plan, its provisions apparently provided that the plan could be terminated at any time provided that “no such action shall adversely affect any Participant’s, former Participant’s or Spouse’s accrued benefits prior to such action under the Plan. . . ” The

Do Your Plan a Favor: Eschew Escheating

Given the migratory nature of society these days, it is not uncommon for an employee benefit plan to accumulate significant sums of money attributable to the accounts of lost participants.  For a number of States, the assets attributable to lost participants are an attractive revenue source.  Utilizing their unclaimed property statutes, many States attempt to seize these funds so they can add them to the State’s coffers.

Most employee benefit plans subject to ERISA can sidestep this potential leakage of plan assets through the use of clear plan language that expressly provides for the forfeiture of amounts from the accounts of participants who are determined to be lost after some predetermined period. The language should also provide that those forfeited funds will be utilized either through a reduction of the sponsor’s contribution obligation or their application to reduce plan expenses.  The Department of Labor has unequivocally

Common 409A Misconceptions

Common 409A Misconceptions

July 24, 2012

Authored by: benefitsbclp

Every 409A attorney knows the look. It’s a look that is dripping with the 409A attorney’s constant companion – incredulity. “Surely,” the client says, “IRS doesn’t care about [insert one of the myriad 409A issues that the IRS actually, for some esoteric reason, cares about].” In many ways, the job of the 409A attorney is that of knowing confidant – “I know! Isn’t it crazy! I can’t fathom why the IRS cares. But they do.”

There are a lot of misconceptions out there about how this section of the tax code works and to whom it applies. While we cannot possibly address every misconception, below is a list of the more common ones we encounter.

I thought 409A only applied to public companies. While wrong, this one is probably the most difficult because it has a kernel of truth. All of the 409A rules apply to all companies, except one.

Five Common 409A Design Errors: #4 No Six-Month Delay for Public Company Terminations

This post is the fourth in our benefitsbclp.com series on five common Code Section 409A design errors and corrections. Go here, here and here to see the first three posts in that series.

Code Section 409A is, in part, a response to perceived deferred compensation abuses at companies like Enron and WorldCom. The story of Code Section 409A’s six month delay provision is inextricably tied to the Enron and WorldCom bankruptcies.

Under established IRS tax principles, participants’ rights under a non-qualified plan can be no greater than the claims of a general creditor. Because deferred compensation plans often pay out upon termination of employment, a plan participant with knowledge of a likely future bankruptcy could potentially terminate employment and take a non-qualified plan distribution to the detriment of the company’s creditors (a number or Enron executives with advance knowledge of Enron’s accounting irregularities

March 15th: Code Section 409A Day

March 15th: Code Section 409A Day

March 12, 2012

Authored by: benefitsbclp

Your company sponsors an annual bonus program. Bonuses are tied to company calendar year performance. The bonus plan says that payments are to occur by March 15th of the year following the performance year. March 15th has always struck you as an odd date.

A friend at another company calls you up, very excited. Her company’s financial performance last year was stellar, and she’s expecting a large payment by March 15th. Another friend at a different company mentions that he’s buying new furniture on the 17th. The proximate cause? Annual bonuses are paid on March 15th.

It is no coincidence that companies often pay out annual bonuses around March 15th. In the case of a company with a calendar year tax year, paying bonuses by March 15 will generally allow the company to deduct the bonuses in the tax year which ends on the prior December 31. But there may

Five Common 409A Design Errors: #3 Multiple Forms of Payment

Five Common 409A Design Errors: #3 Multiple Forms of Payment

March 8, 2012

Authored by: benefitsbclp

This post is the third in our benefitsbclp.com series on five common Code Section 409A design errors and corrections. Go here and here to see the first two posts in that series.

Let’s say that you are negotiating your CEO’s new employment agreement. Because she is preparing for retirement, the CEO would like to be entitled to a stream of monthly lifetime separation payments upon her voluntary termination. This type of lifetime benefit makes sense for your company, and, based on the CEO’s long and faithful service to the company, you agree.

The CEO then asks for a provision calling for an immediate lump-sum payment upon her involuntary termination. The amount of the payment would be the present value, using reasonable actuarial assumptions, of the monthly separation pay annuity. This request seems reasonable – the fact that things may go sour in the future doesn’t

State Taxation of Former Residents’ Retirement Income

State Taxation of Former Residents’ Retirement Income

December 28, 2011

Authored by: benefitsbclp

Recently, the New York State Department of Taxation and Finance issued an Advisory Opinion regarding whether New York State may impose income tax on distributions from a nonqualified deferred compensation plan made to a former resident.  Under federal law, states may not impose income tax on these retirement payments. Plan sponsors that participate in nonqualified deferred compensation plans should be aware of the tax implications of this law.

Click here to view the Alert.

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