Kerry/Emanuel Legislation Would Prohibit Offshore Deferred Compensation
Senator John Kerry (D-Massachusetts) and Representative Rahm Emanuel (D-Illinois) have introduced legislation that would prohibit offshore deferred compensation. Under the Offshore Deferred Compensation Reform Act, compensation deferred under a nonqualified deferred compensation (NQDC) plan of a foreign corporation would be treated as taxable income unless there was a substantial risk of forfeiture. |
House Approves Expatriate Tax Provision
The House approved the Tax Collection Responsibility Act (H.R.3056) on October 10. The legislation would prohibit the IRS from using private debt collectors. It also would impose so-called mark-to-market taxation on expatriates, which would affect plan administration and communication for employers. Legislation Would Change Tax Treatment of Stock Options
Senator Carl Levin (D-Michigan) has introduced legislation to change the corporate tax treatment of stock options. Under the Ending Corporate Tax Favors for Stock Options Act (S.2116), companies could not deduct more than the amount they had claimed as an expense against earnings, and the expense would have to be recognized and deducted in the same period. Stock options could no longer be considered performance-based compensation and would be subject to the $1 million compensation limit. Minimizing Pension Risks
If today’s defined contribution approach to saving for retirement relies too heavily on workers’ doing the right things at the right times, and being lucky besides, maybe it’s time to restructure traditional pensions for the 21st century. To make defined benefit plans more viable, we need to minimize the risks that are scaring off sponsors but retain the benefits that make these plans so valuable. 401(k) Fees Receive Legislative Attention
In early October, Congress continued to focus on 401(k) fees. On October 4, the House Education and Labor Committee held a hearing on the 401(k) Fair Disclosure for Retirement Security Act (H.R.3185), which committee Chair George Miller (D-California) introduced in July. New Legislation Would Link Stock Option Accounting and Tax Rules
Senator Carl Levin (D-Michigan) introduced the Ending Corporate Tax Favors for Stock Options Act (S.2116) on September 28. Mental Health Parity Legislation Advances
Legislation to expand the mental health parity requirements continues to move forward. In the House, the Energy and Commerce Committee approved the Paul Wellstone Mental Health and Addiction Equity Act (H.R.1424) on October 16, which cleared the bill for a vote by the full House. SCHIP Vetoed
As expected, President Bush vetoed legislation to reauthorize and expand the State Children’s Health Insurance Program (SCHIP). SSA to Suspend Disability Service Improvement Initiative
The Social Security Administration (SSA) has proposed to suspend the Disability Service Improvement (DSI) initiative, while soliciting public input on other possible reforms. SEC Issues Comment Letters on Executive Compensation Disclosures
On August 21, the Securities and Exchange Commission (SEC) asked the CEOs of roughly 300 large public companies to submit additional information for their fiscal year 2007 Compensation Discussion and Analysis (CDA) and proxy disclosures by September 21. While many of the SEC’s comments may not warrant a restatement of either the proxy or the company’s 2007 10-K, they suggest a significant gap between what the SEC expected and what was filed. Proposed Regulations on Benefit Restrictions for Underfunded Plans
The IRS recently released proposed regulations on benefit restrictions soon to be imposed on certain underfunded pension plans (and on those deemed to be underfunded by the new rules). The regulations address credit balances, limitations on benefits and accelerated payouts, and the certification of funded status under the Pension Protection Act of 2006 (PPA). 2007 Proxy Disclosures of CEO Pay – Some Observations
Companies had to disclose significantly more information about executive pay in their latest proxies than ever before. To gain greater insight into the current state of executive compensation and lay the groundwork for future trend analyses, Watson Wyatt studied the first proxy disclosures under these new rules, focusing on 690 of the largest U.S. companies (FORTUNE 1000 companies that were the earliest filers of their 2007 proxy statements). Improved Pension Funding and Lower Business Risk in 2006
Pension funding has generated considerable interest during the last decade. Former surpluses became shortfalls in 2001 and 2002, as deteriorating market conditions drove plan assets down and pension obligations up. Getting funding levels back where they should be has required steady effort — including large cash infusions — from many sponsors, as well as good asset returns, but in 2006, most employer-sponsored plans regained full financial health. Sixth Circuit Court of Appeals Rules Cash Balance Plans Not Inherently Age Discriminatory
The Sixth Circuit Court of Appeals affirmed the district court ruling in Drutis v. Rand McNally; Quebecor World that Quebecor’s cash balance plan is not inherently age discriminatory under pre-PPA law. It is the third appellate court to arrive at the same verdict, following the Cooper v. IBM and Register v. PNC decisions. The decision adopts a similar analysis to that used in the Cooper and Register cases, and quotes heavily from the earlier appellate decisions. District Court Rules No Accrual Rule Violation in "Greater of" Transition
A district court has specifically rejected the argument that a “greater of” hybrid plan conversion violates the accrual rules. In Wheeler v. Boeing, the court ruled that plans do not have to aggregate separate benefit formulas for accrual-rule testing, and that the IRS’s interpretation of the regulations is unpersuasive and not entitled to any deference.
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