Fiduciary Rule to Go Into Effect but DOL Provides Temporary Non-Enforcement Policy

As reported in our April 18th blog, the Department of Labor (“DOL”) officially delayed the applicability of the Fiduciary Rule for 60 days, until June 9, 2017.  Given the multiple delays leading up to the proposed June 9th date and President Trump’s February 3rd executive memorandum calling for a full examination of the impact of the Fiduciary Rule, some questioned whether the Rule would be further delayed.  However, on Monday, DOL Secretary Alexander Acosta wrote the DOL has “found no principled legal basis to change the June 9 date while we seek public input” and “[r]espect for the rule of law leads us to the conclusion that this date cannot be postponed.”  

Although the new definition of the term “fiduciary” will become applicable on June 9th, certain provisions of the Rule will be phased in over time, with a full compliance date scheduled for January 1, 2018.  Read More ›

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Public Companies Should Consider Shareholder Reapproval of Section 162(m) Performance Compensation Plans Approved in 2012

As public companies continue to prepare for the 2017 proxy season, we wanted to provide a final reminder of an executive compensation related item that might require shareholder approval in 2017.  As reported in Part 1 of our End of Year Plan Sponsor “To Do” Lists, Section 162(m) of the Internal Revenue Code limits the deduction a public company may take for compensation payable to “covered employees” to $1,000,000 per year. “Performance-based compensation” that meets the requirements of Section 162(m) is not subject to this limitation. The Section 162(m) regulations require that, if the Compensation Committee has the discretion to select among a variety of performance goals, those goals must be reapproved by shareholders every five years.  Read More ›

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Certain Information Statements for ISOs and ESPPs Due by January 31, 2017

As reported in Part 1 of our 2016 End of Year Plan Sponsor “To Do” List, Section 6039 of the Code requires employers to provide a written information statement to each employee or former employee and file information returns with the IRS regarding: (1) the transfer of stock pursuant to the exercise of an Incentive Stock Option (“ISO”); and (2) the first transfer by the employee or former employee of stock purchased at a discount under an Employee Stock Purchase Plan (“ESPP”).  For ISO exercises and ESPP transfers occurring in 2016, the Section 6039 employee information statement requirement is satisfied by providing Form 3921 (for ISOs) and Form 3922 (for ESPPs) to employees no later than January 31, 2017Read More ›

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Settlement of Calma v. Templeton Provides Guidance on Setting Director Pay

In response to recent lawsuits by the plaintiffs’ bar, I have previously posted about why public company employers may wish to consider adding a separate annual limit on non-employee director equity awards. Just last month the Delaware Chancery Court approved a settlement of Calma v. Templeton, a case in which Calma challenged the size of director equity awards granted under Citrix’s shareholder-approved equity compensation plan.  Among other things, the settlement provides what some practitioners believe to be a reasonable framework for structuring director compensation programs on a go-forward basis.  Key provisions of the settlement are as follows:

  • Citrix agreed to amend its equity compensation plan to incorporate a $795,000 cap on the value of equity awards that may be granted to any one non-employee director in any one year. 
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IRS Finalizes Regulations Simplifying 83(b) Filing Requirements

On July 23rd of last year, I blogged on a set of proposed regulations eliminating the requirement that a taxpayer attach a copy of his or her Section 83(b) election to their individual tax return.  This July, the IRS made the proposed rule final and the final regulations eliminate the requirement that a taxpayer attach a copy of their Section 83(b) election to their tax return for the year in which the restricted property was transferred. This change should be welcomed by taxpayers who file electronic federal tax returns because commercial software does not consistently allow taxpayers to attach a copy of the Section 83(b) election to an electronically filed return. Read More ›

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Changes to Accounting Rules Alter Approach to Share-Based Withholding

Earlier this year the Financial Accounting Standards Board released Accounting Standards Update No. 2016-09 (the “ASU”) to improve the accounting treatment of certain stock-based compensation payments.  Among other updates, the ASU modifies the manner in which employers withhold on stock-based compensation awards. 

Under the current accounting rules, one requirement for favorable equity (rather than liability) accounting treatment is that the employer limit the amount it can withhold in connection with stock-based withholding to the minimum statutory amount necessary to satisfy taxes.  The ASU provides that equity accounting treatment will be retained if an employer withholds at the maximum statutory amount necessary to satisfy taxes (or allows the employee to elect his or her withholding rate as long as the elected rate does not exceed the maximum statutory rate in the employees’ applicable jurisdiction).  Read More ›

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Ninth Circuit Rules that Stock Rights Plan is Not Subject to ERISA

In a case of first impression in the Ninth Circuit, the Court held that the Booz Allen Hamilton, Inc. Stock Rights Plan (“SRP”) was not subject to ERISA because its primary purpose was not to provide deferred compensation or other retirement benefits.  As background, ERISA applies to “employee welfare benefit plans” and “employee pension benefit plans.”  For an “employee pension benefit plan” to be subject to ERISA, it must provide retirement income to employees or result in the deferral of income by employees for periods extending to termination of covered employment or beyond.  Being subject to ERISA, subjects a benefit plan to a number of requirements including, without limitation, a Form 5500 filing requirement, fiduciary requirements, vesting rules, and participation rules. Read More ›

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IRS Audit Techniques Guide Provides Helpful Reminders for Sponsors of NQDC Arrangements

Last summer the Internal Revenue Service updated its Audit Techniques Guide (“ATG”) for nonqualified deferred compensation arrangements.  While the ATG provides little instruction on how the IRS will review nonqualified deferred compensation arrangements for compliance with Section 409A of the Code, it provides a helpful reminder of some of the other rules applicable to nonqualified deferred compensation arrangements. Among other things, the ATG reminds sponsors of nonqualified deferred compensation plans to be attentive to the following issues:

  • Deferred compensation arrangements must be in writing.
  • Immediate taxation to a participant could arise if the deferred compensation is not subject to substantial limitations or restrictions (e.g., immediate taxation will arise if the participant can draw on the deferred compensation at any time or if the participant can borrow against the deferred compensation).
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CFOs of Smaller Reporting Companies May Be Considered “Covered Employees” for Purposes of Section 162(m)

The $1,000,000 limitation on deductions imposed by Section 162(m) of the Internal Revenue Code applies to “covered employees.” In Notice 2007-49, the IRS defined the term “covered employees” as follows:

“The IRS will interpret the term “covered employee” for purposes of § 162(m) to mean any employee of the taxpayer if, as of the close of the taxable year, such employee is the principal executive officer . . . of the taxpayer or an individual acting in such capacity, or if the total compensation of such employee for that taxable year is required to be reported to shareholders under the Exchange Act by reason of such employee being among the 3 highest compensated officers for the taxable year (other than the principal executive officer or the principal financial officer).”

Accordingly, since the release of Notice 2007-49, chief financial officers have been excluded from the definition of “covered employee” for purposes of Section 162(m) of the Code. Read More ›

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IRS Announces 2016 Health FSA, HSA, HDHP and Transportation Plan Limits

The IRS has announced cost of living adjustments for health flexible spending accounts (“health FSAs”) in Section 125 cafeteria plans, contributions to health savings accounts (“HSAs”), out-of-pocket maximums under high deductible health plans (“HDHPs”) and qualified transportation plan benefits for 2016.

For 2016, the health FSA limit on voluntary employee salary reduction contributions will remain $2,550 (unchanged from 2015).  For 2016, the HSA contribution limit for individuals will remain $3,350 (unchanged from 2015).  For families the HSA contribution limit for 2016 is $6,750 (increased from the 2015 limit of $6,650).  For 2016, the HDHP out-of-pocket maximum for individuals is $6,550 (increased from the 2015 limit of $6,450).    Read More ›

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