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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Making a List, Checking it Twice

It’s that time of year when boys and girls start making their lists for the holidays, but we in the employee benefits world make a very different kind of list.  In the rapidly changing world of employee benefits and executive compensation law, a checklist can be particularly helpful to make sure important issues do not fall through the cracks.  Each year we publish an executive compensation checklist, a health and welfare plan checklist, and a qualified retirement plan checklist to help individuals stay apprised of changes in the law, changes that they might need to make to their employee benefits plans, and various notice requirements.  Read More ›

Posted in Employee Benefits, Executive Compensation, Health & Welfare Plans, Health Care Reform, Qualified Retirement Plans | Tagged , , , , , , ,

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IRS Announces 2017 Retirement Plan Dollar Limits

The IRS recently announced cost-of-living adjustments for 2017 in Notice 2016-62. The key dollar limits, along with last year’s limits, are noted below.

Maximum Qualified Retirement Plan Dollar Limits

  2016 2017
Limit on Section 401(k) deferrals (Section 402(g)) $18,000 $18,000
Dollar limitation for catch-up contributions (Section 414(v)(2)(B)(i)) $6,000 $6,000
Limit on deferrals for government and tax-exempt organization deferred compensation plans (Section 457(e)(15)) $18,000 $18,000
Annual benefit limitation for a defined benefit plan (Section 415(b)(1)(A)) $210,000 $215,000
Limitation on annual contributions to a defined contribution plan (Section 415(c)(1)(A)) $53,000 $54,000
Limitation on compensation that may be considered by qualified retirement plans (Section 401(a)(17)) $265,000 $270,000
Dollar amount for the definition of highly compensated employee (Section 414(q)(1)(B)) $120,000 $120,000
Dollar amount for the definition of a key employee in a top-heavy plan (Section 416(i)(1)(A)(i)) $170,000 $175,000
Dollar amount for determining the maximum account balance in an ESOP subject to a five-year distribution period (Section 409(o)(1)(C)(ii)) $1,070,000 $1,080,000
SIMPLE retirement account limitation (Section 408(p)(2)(E)) $12,500 $12,500
Social Security Taxable Wage Base $118,500 $127,500

  Read 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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IRS Issues Additional Guidance on Determination Letter Program

As was previously announced in 2015, effective as of January 1, 2017, the Internal Revenue Service (“IRS”) is eliminating its five year staggered determination letter cycle for individually designed retirement plans. Plans in the current cycle (Cycle A) still may submit their plans for determination letters on or before January 31, 2017.  Pursuant to Revenue Procedure 2016-37, going forward, individually designed plans will only be permitted to submit a determination letter application on initial plan qualification, plan termination and in certain other circumstances as announced by the IRS.

The IRS did not provide much guidance on the other circumstances in which existing plans would be permitted to seek determination letters in the future, other than to provide that it will give consideration to significant changes in the law, new approaches to plan design and the IRS’ current case load and resources. Read More ›

Posted in Employee Benefits, Executive Compensation, Health & Welfare Plans, Qualified Retirement Plans | Tagged , , , , , , ,

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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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