Category: Deferred Compensation/Executive Compensation
Section 457(f) Plans and Noncompete Clauses: What the IRS Gave, the FTC May Take Away
When the IRS published proposed regulations harmonizing key provisions of Code Sections 409A and 457(f) in 2016, executive compensation lawyers and consultants rejoiced. It was not just that a long wait was over (roughly nine years from the publication of IRS Notice 2007-62, which promised guidance on these issues...
Why Is There No IRS Correction Program for Non-Governmental 457(b) Plans?
This post examines excess deferrals under non-governmental 457(b) plans, including the approved method for correcting them and the penalty for failing to correct them, to make the case for a change in IRS policy on correcting administrative errors in such plans. Non-governmental 457(b) plans are sometimes called “eligible deferred...
How many participants is too many for a top hat plan?
A client recently reviewed a census of participants in its deferred compensation plan and found that the covered group amounted to nearly 15% of its total workforce. Mindful of the need to limit the number of participants in a top hat plan, this compliance-oriented organization asked whether it should...
Correcting 401(k) Plan Excess Elective Deferrals
With the April 15 deadline for distributing excess elective deferrals fast approaching, this post summarizes the rules for correcting excess elective deferrals made to a 401(k) plan. In brief, excess elective deferrals not distributed from a 401(k) plan by April 15 of the calendar year following the calendar year...
Nonqualified Deferred Compensation and the Special Timing Rule HR Professionals Should Be Aware of for FICA Tax Purposes
Twenty years ago this month the Enron Corporation imploded in spectacular fashion and declared bankruptcy. In the weeks leading up to its bankruptcy filing, over 100 highly compensated employees raced to receive early distributions of nonqualified deferred compensation, and were ultimately successful in removing over $50 million from the...
Using a Non-Compete to Create a Substantial Risk of Forfeiture Under a Section 457(f) Plan: Limited (But Meaningful) Opportunities
UPDATED (added May 21, 2024): The FTC Final Rule on Noncompete Clauses applies to tax-exempt organizations who become subject to FTC jurisdiction as a result of profit-seeking activities that benefit their members. For more information about the potential application of the FTC Final Rule to tax-exempt organizations, read our...
Primer on Severance Plans Under ERISA and the Tax Code
Many employers maintain formal or informal severance policies or practices that they use sporadically. Other employers may implement a severance program for a limited period of time to reduce the number of employees overall or within a work classification or location. All employers should be mindful that these policies...
Reporting Deferred Compensation on Form 990
Tax-exempt organizations often provide deferred compensation to their officers, key employees, and most highly compensated employees. Like current compensation payable to such employees, deferred compensation must be reported annually on Form 990, Schedule J. For the most part, Schedule J is straightforward. However, it is not always obvious how...
CARES Act Imposes Limits on Executive Pay over $425,000 for Businesses Seeking Financial Assistance
On Friday, March 27, 2020, the $2 trillion assistance package known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides a variety of relief programs to companies and, similar to the Troubled Asset Relief Program (“TARP”) implemented during...
Handling Missing Participants under Code Section 409A
Deferred compensation payments are due to one of your former executives, but the former executive is nowhere to be found. You know that the IRS has strict timing rules for payments subject to Code Section 409A (but maybe not as strict as you think ). The end of the...
IRS Guidance Regarding the Section 4960 Excise Tax Is (Somewhat) Helpful
IRS Notice 2019-09 provides guidance intended to help "applicable tax-exempt employers" determine whether compensation paid to their most highly compensated employees will be subject to the 21 percent excise tax imposed under Code Section 4960. Notice 2019-09 is indeed helpful to those of us who have to interpret the...
New Disability Claims Procedures Affect Retirement Plans and Deferred Compensation Plans Too
Much has been written about the Department of Labor's final rule regarding disability benefit claims procedures (the "Final Rule"), which took effect on April 2, 2018. And by now, most employers – and all disability insurance carriers – have taken steps to implement changes in disability plan administrative procedures...
How can a tax-exempt employer manage the new excise tax on executive compensation?
The executive compensation provisions of the Tax Cut and Jobs Act have been widely reported, and public companies and tax-exempt employers are now thinking about how to adjust to the new statutory changes. Tax-exempt employers face the startling new reality of a 21% excise tax on "remuneration" exceeding $1,000,000...
Tax Reform: A Brief Overview of the Final Legislation
Congress passed the Tax Cuts and Jobs Act on December 20, 2017, and President Trump signed the bill into law on December 22nd. As everyone knows by now, the new law makes sweeping changes affecting most areas of income taxation. And while the final legislation contained fewer provisions affecting...
House Tax Bill Targets Deferred Compensation Earned After January 1, 2018 (Really)
It's early days yet for the Tax Cuts and Jobs Act released last week by the House Ways and Means Committee, but one thing is clear: Congressional tax writers are scouring the landscape to find a combination of more revenue and accelerated revenue from various sources in order to...
Proposed Regulations Create (Some) Executive Compensation Design Opportunities for Tax-Exempt Employers
It has been a long time coming (nine years to be exact), but the Treasury Department has at last published proposed regulations that harmonize important concepts governing deferred compensation arrangements under Code Section 409A and Code Section 457. The proposed regulations contain no major surprises that would shake up...
When a “Termination” is Not a Termination
Employers grapple with the employee benefits consequences of employment terminations in a variety of contexts. In the retirement plan context when a vested participant's employment ends the most significant consequence typically will be the participant's right to receive a benefit distribution. In most cases – where there is a...
Section 409A Basics: When is a Payment Date Close Enough?
Code Section 409A(a)(2)(A) prescribes six times or events when deferred compensation may be paid: separation from service, the disability of the participant, the death of the participant, a specified time or fixed schedule specified under the plan, a change in control of the employer, or an unforeseeable emergency. In...
Section 457(f) Should Not Apply to the Deferred Compensation Plan of a For-Profit Subsidiary of a Tax-Exempt Organization – Right?
Special thanks to Peter J. Dill, a Senior Consultant at Towers Watson (Boston), for his consultation and input on this post. Treasury Regulations meant to reconcile the "substantial risk of forfeiture" provisions of Code Section 409A and Code Section 457(f) are expected to arrive some day. Those regulations have...
Section 409A Basics: Deferral Elections and Discretionary Bonuses
The Final Regulations under Code Section 409A took effect nearly five years ago. By now those of us who regularly deal with deferred compensation issues have fully internalized the core requirements of Section 409A. We have even managed to sensitize our clients and other professionals to the possibility that...
Five Things Employers Should Like About Restricted Stock
Employers large and small often ask us how they can reward key employees for their contributions to the success of the company and provide a meaningful inducement for them remain with the company. These companies often have annual incentive plans, but they typically are looking for a longer term...
Five Things to Consider in Completing Form 990: Tips from an Expert
We are pleased to offer a guest post by Warren Kerper , Managing Principal in the Boston office of Sullivan, Cotter and Associates, Inc. Warren advises tax-exempt employers, especially health care organizations and colleges and universities, in the design and establishment of a wide variety of executive compensation arrangements...
Intermediate Sanctions and Executive Compensation - A Quick Refresher
Executive pay in the exempt organization setting has been subject to scrutiny and regulation since long before corporate bad actors and the financial crisis prompted Congress to pass laws limiting compensation and imposing process requirements for banks, public companies and other for-profit employers. The basic rules that apply to...
409A and Linked Elections Following 401(k) Hardship Suspension
Many tax-qualified Section 401(k) plans provide that a participant who takes a hardship distribution pursuant to Treasury Regulation Section 1.401(k)-1(d)(3) is suspended from participating in any qualified or nonqualified deferred compensation plans of the Company for a period of six months. After the suspension period elective deferrals under some...
409A Corrections Guidance: Which Year Is Correction Completed?
Relief for nonqualified deferred compensation plan operational failures made pursuant to Internal Revenue Service guidance under Section 409A requires certain information reporting by affected employers and participants. It is important to promptly correct any discovered errors, as fewer requirements apply with respect to corrections of failures completed during the...
