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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

January 23, 2018

Authors

Meredith Jacobowitz and Brian Berglund

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

January 23, 2018

by: Meredith Jacobowitz and Brian Berglund

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The House passed a version of the Bill that would have repealed the exclusion from income for

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

August 2, 2016

Authors

Chris Rylands and Katharine Finley

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

August 2, 2016

by: Chris Rylands and Katharine Finley

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

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

August 12, 2013

Authors

Brian Berglund

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

August 12, 2013

by: Brian Berglund

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.)

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Executive Compensation – 2012 Year-End Compliance and 2013 Planning

November 8, 2012

Authors

benefitsbclp

Executive Compensation – 2012 Year-End Compliance and 2013 Planning

November 8, 2012

by: benefitsbclp

It’s that time of year again!  Time to ensure year-end executive compensation deadlines are satisfied and time to plan ahead for 2013.  Below is a checklist of selected executive compensation topics designed to help employers with this process.

I.       2012 Year-End Compliance and Deadlines

□      Section 409A – Amendment Deadline for Payments Triggered by Date Employee Signs a Release

It is fairly common for an employer to condition eligibility for severance pay on the release of all employment claims by the employee.  Many of these arrangements include impermissible employee discretion in violation of Section 409A of the Internal Revenue Code because the employee can accelerate or delay the receipt of severance pay by deciding when to sign and submit the release.  IRS Notice 2010-6 (as modified by IRS Notice 2010-80), includes transition relief until December 31, 2012 to make corrective amendments to

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Proposed Changes to ISS Proxy Voting Policies

October 30, 2012

Authors

Serena Yee and Brian Berglund

Proposed Changes to ISS Proxy Voting Policies

October 30, 2012

by: Serena Yee and Brian Berglund

On October 16, 2012, Institutional Shareholder Services (ISS) issued for comment several proposed proxy voting policy changes.  The following would affect U.S. public companies:

Board Matters

Current Policy: Recommend vote against or withhold votes from the entire board (except new nominees, who are considered case-by-case) if the board failed to act on a shareholder proposal that received the support of either (i) a majority of shares outstanding in the previous year; or (ii) a majority of shares cast in the last year and one of the two previous years.

Proposed Policy: Recommend votes against or withhold votes from the entire board (with new nominees considered case-by-case) if it fails to act on any proposal that received the support of a majority of shares cast in the previous year.

The proposed change is intended to increase board accountability. ISS is specifically seeking feedback as to whether there are specific circumstances where

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Common 409A Misconceptions

July 24, 2012

Authors

benefitsbclp

Common 409A Misconceptions

July 24, 2012

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.

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Facebook and 409A: When $300 Million Isn’t Enough

May 22, 2012

Authors

benefitsbclp

Facebook and 409A: When $300 Million Isn’t Enough

May 22, 2012

by: benefitsbclp

On May 18th, two famous, photogenic Olympians found themselves almost $300 million richer. A banner day for anyone, and yet they may have felt at least a twinge of regret. Why? They contend that 409A should have made them much richer, to the tune of as much as $1.2 billion.

At this point, Hollywood has made the story almost old-hat. In December 2002, then Harvard students Tyler and Cameron Winklevoss had an idea. They would develop a web site that connected Harvard students. If successful, they would expand the concept to other campuses. In November of 2003, after several false starts, the Winklevoss twins retained the services of a young, talented programmer to implement their vision. Three months later, without the knowledge of the Winklevoss twins, Mark Zuckerberg gave birth to Facebook. After a successful run at Harvard, the social networking site spread to other campuses, and then took over

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Jumpstart Our Business Startups Act (JOBS ACT) Contains Executive Compensation Provisions

April 5, 2012

Authors

benefitsbclp

Jumpstart Our Business Startups Act (JOBS ACT) Contains Executive Compensation Provisions

April 5, 2012

by: benefitsbclp

Update (2:45 PM): As expected, President Obama has signed the JOBS Act into law.

The JOBS Act is expected to be signed by President Obama today. According to the Act, it is intended:

To increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.

The Act includes provisions relating to crowdfunding, access to capital markets, exemptions to encourage small company capital formation, increased private company shareholder threshold for registration, and reduced public company compliance and disclosure burdens for “emerging growth companies.”

In addition, Title I of the Act “ Reopening American Capital Markets to Emerging Growth Companies,” includes changes to executive compensation disclosure requirements for emerging growth companies.

Emerging Growth Company. An emerging growth company means a company with total annual gross revenues of less than $1 billion (indexed for inflation). Only companies with an IPO after

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Five Common 409A Design Errors: #5 Payment Periods Longer than 90 Days

April 4, 2012

Authors

benefitsbclp

Five Common 409A Design Errors: #5 Payment Periods Longer than 90 Days

April 4, 2012

by: benefitsbclp

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

Code Section 409A abhors discretion. One concern with discretion is that it could lead to the type of opportunistic employee action or employer/employee collusion that hurt creditors and employees during the Enron and WorldCom scandals.

Another concern is that discretion could be used opportunistically to affect the taxation of deferred compensation. Consider an employment agreement with a lump-sum payment due at any time within thirteen months following a change in control, as determined in the employer’s discretion. This provision would permit the employer to pick the calendar year of the payment. Because non-qualified payments are generally taxable to the recipient when paid, this type

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

March 20, 2012

Authors

benefitsbclp

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

March 20, 2012

by: benefitsbclp

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

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