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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Proposed IRS Regulations Simplify Section 83(b) Filing Requirements

As explained in a prior blog post, an employee who timely files a Section 83(b) election will be taxed on the fair market value of property transferred (typically restricted stock) to him or her in exchange for services on the date of grant rather than as the stock vests.  In addition, by making a Section 83(b) election, the employee will start the clock on the capital gains holding period. The Section 83(b) election must be filed with the Internal Revenue Service within 30 days from the date on which the property is transferred to the employee.  In addition, the employee is required to provide a copy of the 83(b) election to his or her employer and must attach a copy of the election to his or her individual tax return for the year in which the election is made. Read More ›

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IRS Releases Clarifying 162(m) Regulations

The IRS recently released final regulations clarifying two aspects of the “performance-based compensation” exception to the $1,000,000 limit on deductible compensation paid to covered employees under Section 162(m) of the Internal Revenue Code.

Proposed regulations issued in 2011 provided that in order to qualify awards as “performance-based compensation” a shareholder approved equity plan must specify the maximum number of shares with respect to which options and stock appreciation rights may be granted during a specified period to any individual employee. Under the final regulations, a plan will satisfy this “per-employee limitation” requirement if the plan specifies an aggregate maximum number of shares with respect to which stock options, stock appreciation rights, restricted stock, restricted stock units, and other equity-based awards may be granted to any individual employee during a specified period.  Read More ›

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Don’t Miss Short-Term Deferral Day

Section 409A, the provision of the Internal Revenue Code that regulates the time and form of payment of nonqualified deferred compensation, contains a helpful exception for “short-term deferrals.”  Specifically, Section 409A provides that a payment will not be considered nonqualified deferred compensation if the employer makes the payment on or prior to the 15th day of the third month following the end of the employee’s (or, if later, the employer’s) taxable year in which the employee’s right to the payment vests.  For individuals and for employers with calendar fiscal years, the key date for purposes of the short-term deferral exception is March 15th. Read More ›

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Deferral Elections for 2015 Compensation

As reported in Part 3 of our 2014 End of Year Plan Sponsor “To Do” List, employers that sponsor deferred compensation programs should take action to ensure that deferral elections that apply to compensation that will be earned in 2015 are made by December 31, 2014.  As a general rule, Section 409A requires that compensation deferrals under a nonqualified deferred compensation program be made during the taxable year before the year in which the underlying services are performed. There are some exceptions to this general rule, but employers should be mindful that Section 409A imposes strict requirements on the timing of compensation deferral elections and that most deferrals of 2015 compensation must be made on or before December 31, 2014. Read More ›

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ISS Proposes New Approach to Evaluating Equity Compensation Plans

Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, recently proposed a new “scorecard” approach to evaluating public company equity plans (the “Equity Plan Scorecard”).  Under the new approach, ISS will recommend a “for” or “against” vote based on a company’s Equity Plan Scorecard.  Pursuant to the proposal, a company’s Equity Plan Scorecard score will be based on factors related to the following three categories:

•  The total potential cost of the company’s equity plan relative to industry/market cap peers, measured using ISS’ proprietary “shareholder value transfer” or “SVT” model.

•  Plan features including automatic single trigger vesting on change in control, discretionary vesting authority, liberal share recycling, and minimum vesting periods for grants made under the plan. Read More ›

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ISS Offers New Equity Compensation Plan Data Verification Portal

Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, recently launched a new data verification portal to assist it in verifying the information it uses in evaluating public company equity compensation plans. Public companies that file their proxy statements after September 8, 2014 (and that have an equity plan proposal on their proxy ballot), can use the portal to verify the key data points that ISS will use in its equity plan evaluation.

According to a recent set of FAQs, the data verification period will open after the date a participating company files its proxy statement. After the proxy is filed, ISS will direct the participating company to verify key data points and to request changes. Read More ›

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Now Is a Good Time to Revisit 409A Compliance

The IRS recently announced a Section 409A compliance initiative project.  The IRS audit project will focus on approximately 50 employers, all of whom were previously identified for employment tax audits.  The IRS indicated that it will focus its examination on: (i) initial deferral elections; (ii) subsequent deferral elections; (iii) distributions; and (iv) application of the six-month delay rule for specified employees of publicly traded companies.  Representatives from the IRS said that the examination will be limited to the top 10 most highly compensated employees of each employer.

If you are not participating in the compliance initiative project, now might be a good time to review your “nonqualified deferred compensation” arrangements for compliance with Section 409A.  Read More ›

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The Importance of Section 83(b) Elections for New Companies

Many start-up companies reward their employees with restricted stock subject to time-based (or performance-based) vesting restrictions.  What we sometimes find is that the start-up company and the employee do not fully appreciate the tax implications of a restricted stock award and the potential benefits of a timely filed Section 83(b) election.

Section 83 of the Code generally provides that restricted stock becomes taxable to the employee as the stock vests.  Accordingly, on each vesting date, the employee will recognize ordinary taxable income in an amount equal to the fair market value of the stock, less any amount the employee paid for the stock.  Read More ›

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IRS Clarifies Conditions that Constitute a Substantial Risk of Forfeiture Under Section 83

The IRS recently released final regulations (“Final Regulations”) clarifying the conditions that constitute a substantial risk of forfeiture for purposes of Section 83 of the Internal Revenue Code.  As some of you know, Section 83 generally provides that property transferred in connection with the performance of services will be not be taxed until the date on which the property is no longer subject to a “substantial risk of forfeiture.”  Common “substantial risks of forfeiture” for purposes of Section 83 are continued employment (i.e., time-based vesting conditions) and performance (i.e., performance-based vesting conditions).

The Final Regulations clarify that (i) except as expressly provided in the regulations, a substantial risk of forfeiture may be established only though service conditions related to the purpose of the property transfer, (ii) in determining whether a substantial risk of forfeiture exists, both the likelihood that the forfeiture event will occur and the likelihood that the forfeiture event will be enforced must be considered, (iii) except as expressly provided in the regulations, transfer restrictions (including restrictions that carry the potential for disgorgement of the transferred property) do not constitute a substantial risk of forfeiture, and (iv) a substantial risk of forfeiture due to liability under the SEC short-swing profit rules do not extend beyond the six month period described in the SEC rules. Read More ›

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