Wednesday, February 16, 2011

2011 Cost-of-Living Adjustments for Pension Plan and Other Limits; Transportation Fringe Parity Extended One Year by Tax Relief Act

Charles C. Shulman, Esq., LLC
Employee Benefits, Employment & Executive Compensation Law
www.ebeclaw.com  www.EmployeeBenefitsLaw.info


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632 Norfolk St., Teaneck, NJ 07666
NJ Tel - 201-357-0577
(rings in office & on cell)
Fax - 201-836-4847
NY Office:
345
Seventh Ave.
, 21 Fl., New York, NY
NY Tel – 212-380-3834
E-mail - cshulman@ebeclaw.com
Admitted in NY & NJ


EBEC (Employee Benefits / Executive Compensation) Law Update
October 28, 2010
Updated Dec. 18, 2011
2011 Cost-of-Living Adjustments for Pension Plan and Other Limits;
Transportation Fringe Parity Extended One Year by Tax Relief Act
      1.   2011 COLA for Pension Plan Limits Unchanged or Changed Slightly.  This morning the IRS announced in IR-2010-108 that because the cost of living for the quarter ending Sept. 30, 2010 was lower than the cost of living in quarter ending Sept. 30, 2008 (although it was slightly higher than the cost of living for quarter ending Sept. 30, 2009), the pension plan limits for 2011 adjusted by IRC § 415(d) will remain unchanged at the 2010 and 2009 level.  Certain other limits relating to retirement plans adjusted by other provisions will increase slightly.
Pension Plan Limits Adjusted by IRC § 415(d)

2011 Amounts
(Same as 2010 & 2009)
Annual benefits limit for defined benefit plans – Code § 415 (b)
$195,000
Annual contributions limit for defined contribution plans – Code § 415(c)
$49,000
Elective deferral max for 401(k), 403(b) & 457(b) plans – Code § 402(g)
$16,500
Elective deferral limit for SIMPLE plans – Code § 408(p)
$11,500
Age 50 catch-up contributions – Code § 414(v)
$5,500
Highly-compensated employee threshold – Code § 414(q)
$110,000
Annual compensation limit – Code § 401(a)(17)
$245,000
Key-employee threshold for top heavy plan - § 416(i)
$160,000
ESOP account balance for 5-year / 1-year distribution rule under IRC § 409(o)(1)(C)(ii)
$985,000 &
$195,000

      See also IRS COLA chart
      The following pension-related amounts adjusted under IRC § 1(f)(3) have been increased slightly:
     

Pension-Related Amounts Adjusted under § 1(f)(3)

2010 Amount

2011 Amount
Phase-out for deductions for IRA for married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan
$89,000 to
$109,000
$90,000  to
$110,000
Adjusted gross income (AGI) phase-out range for married joint filers taxpayers making contributions to a Roth IRA
$167,000 to
$177,000
$169,000 to
179,000
AGI limit for retirement savings contributions credit for married couples filing jointly
$55,500
$56,500
IRC § 430(c)(7)(D)(i)(II) amount for determining excess employee compensation for defined benefit plans where election has been made
$1,000,000
$1,014,000


      2.   2011 Health Savings Account (HSA) Contribution Limits Unchanged.  As announced in June in Rev. Proc. 2010-22, health savings account (HSA) contribution limits for 2011 will have no cost-of living adjustments in 2011 and will remain at a maximum single contribution limit of $3,050 and a maximum family contribution limit of $6,150.
      3.   PBGC Maximum Insurance Benefit and PBGC Premiums Unchanged.  As announced last week, the PBGC maximum insurance benefit is unchanged for 2011 at $54,000 per year ($4,500 per month).   PBGC News Release (Oct. 19, 2010).
      The PBGC flat-rate premium for 2011 is also unchanged at $35 for a single-employer plan and $9 for multiemployer plans.  PBGC – What’s New – Oct. 19, 2011
      4.   Social Security Taxable Wage Base Unchanged.  The Social Security Administration announced in a press release and fact sheet, issued October 15, 2010, that there will be no automatic cost-of-living adjustment for Social Security benefits in 2011.  Similarly, the social security taxable wage base (subject to the 6.2% social security tax) is unchanged at $106,800.  Also, the annual earnings test remains $14,160 prior to normal retirement and $37,680 at normal retirement age.
      5.   Transit Passes and Van Pooling Remains at $230 for One More Year.  The  cost-of-living adjustment for qualified transportation limits under Code § 132(f) had not been announced in Rev. Proc. 2010-41, but would presumably have been unchanged at $230 for qualified parking benefits and $120 for transit passes and van pooling.  However, the American Recovery and Reinvestment Act of 2009 provided for temporary parity between public transit/van-pooling and parking, so that the monthly limitation for transit passes and van pooling was the same as for qualified parking benefits - $230 – through December 31, 2010.  The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 enacted Dec. 18, 2010, extends this increased $230 limit for transit passes and van pooling through December 31, 2011.  The $230 dollar amount is presumably unchanged by cost-of-living for 2011.
      If you have any questions regarding the above or any other matter, please contact me at the number listed above.
                                                                        Charles C. Shulman

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.


EXECUTIVE COMPENSATION PROVISIONS OF DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2010

Charles C. Shulman, Esq., LLC
Employee Benefits, Employment & Executive Compensation Law
www.EBEClaw.com


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632 Norfolk St., Teaneck, NJ 07666
NJ Tel - 201-357-0577
(rings in office & on cell)
Fax - 201-836-4847
NY Office:
345 Seventh Ave., 21 Fl., New York, NY 10001
NY Tel – 212-380-3834
E-mail - cshulman@ebeclaw.com
Admitted in NY & NJ


EBEC (Employee Benefits / Executive Compensation) Law Update
[December 15, 2010]
EXECUTIVE COMPENSATION PROVISIONS OF DODD-FRANK
WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, P.L. 111-203, H.R. 4173, signed July 21, 2010 (“Dodd-Frank Act” or “Act”), contains say-on-pay and other shareholder-accountability executive compensation proxy rules.
1.   Say-on-Pay.  Section 951 of Dodd-Frank Act adds new § 14A(a) (15 USC §78n-1(b)) to the Securities Exchange Act of 1934 that a non-binding shareholder vote on executive compensation must be held every 1,2 or 3 years (with frequency elected in a separate shareholder vote at least once every 6 years).
The “say-on-pay” vote is on compensation of named executive officers as disclosed in the executive compensation disclosure of the proxy.
The say on pay vote is non-binding – it is advisory only – and it does not create any additional fiduciary duties. Previously, optional say on pay votes required a preliminary proxy. A preliminary proxy will not be required for mandatory say on pay vote, according to proposed rules as discussed below.
2.   Say-On-Golden Parachutes.  Section 951 of the Dodd-Frank Act adds § 14A(b) to the Securities Exchange Act that a proxy or consent solicitation with a shareholder vote to approve a transaction, requires disclosure and a separate non-binding vote for any agreements with named executive officers relating to compensation (present, deferred or contingent) that is based on or relates to an acquisition, merger, consolidation, sale or other disposition of substantially of all the assets (“golden parachutes”) and the total of such compensation that may be paid out.
3.   Effective Date.  The various shareholder vote requirements such as say on pay, frequency of vote and say on golden parachute become effective on the first shareholder meeting occurring on or after January 21, 2011 (6 months after enactment of Dodd-Frank Act). No rulemaking is required to trigger the effective date.
4.   Proposed Regulations on Say-on-Pay.  The SEC released proposed rules and amendments to rules relating to the above say-on-pay and say-on-golden parachute requirements of the Dodd-Frank Act. 17 CFR Parts 229, 240 and 249, 75 Fed. Reg. 66590 (Oct. 28, 2010). (All references below to regulations are to these proposed regulations and proposed amendments to regulations.)
a.  Annual Proxies. Say-on-Pay is only required in proxies for election of directors.
b.  Say on all NEO 402 Pay.  Vote of say-on-pay is for all Item 402 compensation for named executive officers (including CD&A, tables are other narrative disclosure under Item 402 Rule 14(a)-21(a), 17 CFR § 240-14a-21(a). This vote is not required for director compensation.
c.  Vote.  The vote is on approval of compensation of executives as disclosed under Item 402 of Reg. S-K.
d.   Vote on Frequency of Say-on-Pay Vote. Choice of voting frequency is one year, two years or three years (and shareholder can also abstain). Rule 14a-21(b).
e.   No Preliminary Proxy. No preliminary proxy is required for shareholder say-on-pay vote or frequency vote. Rule 14a-6(a).
f.  Compensation Discussion & Analysis. Item 402(b) is changed so that disclosure is required in CD&A as to whether and how the company’s compensation policy takes into account the prior say on pay vote.
5.            Proposed Regulations on Say on Golden Parachute.  These proposed rules also govern say on golden parachutes.
a.       Separate Vote in Transaction Proxy. Proposed rules provide that in a proxy or consent solicitation to approve an acquisition, merger, consolidation or sale of substantially all of assets, a separate shareholder vote is required to approve any type of compensation (whether present, deferred or contingent) that is based on or relates to the transaction. 17 CFR § 240.14a-21(c) & § 229.402(t)(1)
b.       Separate Golden Parachute Vote Not Required if Already Approved in Annual Proxy. The vote on golden parachutes is not required if such golden parachutes were already approved in the regular annual (or bi or tri-annual) proxy vote assuming the applicable 402(t) golden parachute chart has been included in  the annual proxy.  17 CFR § 240.14a-21.
c.       Golden Parachute Table. Golden parachute compensation disclosure, where required, shall include under proposed Item 402(t) a golden parachute compensation table with the named executive officers and the dollar value of cash severance, accelerated stock options, and other  stocks awards, payments in cancellation of such awards, pension and deferred compensation benefit enhancements, prerequisites, tax reimbursements (such as 280G gross-ups) and other personal benefits, and any other compensation payable on account of the transaction. 17 CFR § 229.402(t).
d.       Footnotes to Golden Parachute Table.  Footnote should disclose each separate form of compensation and shall indicate if it is a single trigger or a double trigger.  Even change in control compensation from broad-based plans must be disclosed to the extent it affects the named executive officers.
e.       Narrative Golden Parachute Disclosure. Item 402(t)(3) requires narrative description of material factors applicable to the change in control payments in the chart, including conditions of payment, form of payment, noncompetes and confidentiality agreements.
6.   Recovery of Erroneously Awarded Compensation – Expanded Clawbacks.  Section 954 of the Dodd-Frank Act adds securities Exchange Act § 10D, which instructs the SEC to direct the listing exchanges to require of the listed companies:
a. Disclosure of the company’s policy regarding incentive compensation based on reported financial information; and
b. Recoupment (clawback) from any current or former executive officer of any incentive compensation paid during the past three years based on erroneous data if the company is required to restate the financials; the recoupment is for the excess of the amount of incentive compensation paid based on the erroneous financial information over what would have been payable under the corrected financial information.
Note that the Dodd-Frank Act clawback is broader than the Sarbanes-Oxley Act clawback in that under Dodd-Frank it applies to erroneous information whether or not there was misconduct, it goes back three years instead of 12 months and it applies to all executive officers not just named executive officers.
7.        Compensation Committees and Compensation Consultant are Advisor Independence.
a.       Compensation Committee Independence. Section 952 of Dodd-Frank Act adds §10C(a) of the Securities Exchange Act instructing stock exchanges to require that listed companies have compensation committee members who are Board members and are also “independent”. The respective stock exchanges will define independent considering compensation paid to the committee members (e.g. consulting or advisory fees) and whether the committee member is affiliated with the company.
A compensation consultant or other advisor may be selected only after the compensation committee has taken into account relevant factors determining independence including: (i) provision of other services to the company by the entity that employs the consultant or advisor; (ii) fees received from the company as a percentage of the total revenue of the entity that employs the consultant or advisor; (iii) policies of the entity employing the consultant or advisor; (iv) any business or personal relationship between the compensation committee and the consultant or advisor; and (v) any stock of the company owned by the compensation consultant or advisor.
b. Authority to Retain Compensation Consultants and Advisors.  Section 952 also adds Securities Exchange Act §§ 10C(c) and (d) that a compensation committee may in its sole discretion retain a compensation consultant legal counsel or other advisors. The compensation committee will be directly responsible for appointment, compensation and    oversight of the work of the consultant or advisor. (The annual proxy must disclose    whether the compensation committee has engaged a compensation consultant and whether there are any conflicts of interest.)
c. Funding Section 10C(e) provides that the company shall provide appropriate funding for reasonable compensation of the committee’s compensation consultant and advisors.
d.  Requirement of Listing Companies and Effective Date  The Dodd-Frank Act provides that the SEC must adopt rules by 360 days after enactment (July 16, 2011) providing that securities exchanges shall prohibit security listing by companies not in compliance with these compensation consultant & advisor rules. § 10C(f).
8. Hedging Disclosure. The proxy must contain a policy regarding permissibility of employees or directors purchasing derivatives to hedge against equity grants. Section 955 of Dodd-Frank Act adding § 14(j) of  the Securities Exchange Act.
9. Joint or Separate CEO & Chairman. Under § 972 of the Dodd-Frank Act  rules are to be issued within 180 days of enactment (Jan. 17, 2011) requiring listed company proxies to disclose why CEO and Chairman are the same person or two separate people.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.

NOTICE 2010-80: RELIEF FOR PAYMENTS CONDITIONED ON EXECUTING RELEASES AND FOR § 409A CORRECTION PROGRAMS






Charles C. Shulman, Esq.
Employee Benefits, Employment & Executive Compensation Law
www.EBEClaw.com



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632 Norfolk St., Teaneck, NJ 07666
NJ Tel - 201-357-0577
(rings in office & on cell)
Fax - 201-836-4847
NY Office:
345 Seventh Ave., 21 Fl., New York, NY 10001
NY Tel – 212-380-3834
E-mail - cshulman@ebeclaw.com
Admitted in NY & NJ


EBEC (Employee Benefits / Executive Compensation) Law Update
December 6, 2010
NOTICE 2010-80:
RELIEF FOR PAYMENTS CONDITIONED ON EXECUTING
RELEASES AND FOR § 409A CORRECTION PROGRAMS
Notice 2010-80 - Relief With Respect to Correction Methods and Payment Conditioned on Executing Release. Notice 2010-80, issued on Nov. 30, 2010, provides certain relief with respect to the IRC § 409A correction methods described below, as well as with respect to payments conditioned on employment-related action of the employee such as executing a release, as summarized below.
v  IRS Notice 2008-113 described certain self-correction methods for § 409A operational failures, provided the corrections are made in the year of failure or in certain cases in the first or second year following the year of failure.  (The notice also provided certain transitional relief for operational failures occurring before 2008.)   See Feb. 28, 2009 client memo.
v  IRS Notice 2010-6 allowed taxpayers to voluntarily correct many documentary failures under IRC § 409A, including (i) impermissible definitions of payment events, (ii) impermissible payment periods, payment events or payment schedules, (iii) lack of six-month delay, (iv) impermissible initial deferrals, etc.  This notice also provides certain transition rules for corrections on or prior to Dec. 31 2010 or for certain corrections on or prior to Dec. 31, 2011.  
v  Notice 2010-6 also provides relief for payments conditioned on employment-related action of the employee such as executing a release, non-solicitation agreement or non-compete agreement, that correction can be made before the permissible payment event occurs by removing the ability of the employee to delay or accelerate the timing of the payment as a result of his or her actions, and fixing the payment date at 60 (or 90) days after the payment event (with certain other conditions, as outlined below).   See March 7, 2010 client memo for more information.
Severance Conditioned on Executing Release – Expanded Relief.  When payment of severance is conditioned on the employee’s signing a release of claims (including age discrimination waivers), and the employee can sign the release at any time, this could cause the severance to fail to be a short-term deferral or to have or not have a fixed payment date as required by IRC § 409A. 
One solution that practitioners have used is to provide a fixed deadline in which time to execute the release, e.g., the release must be executed and not revoked by the 60th (or 90th) day following termination, and the terms of the release would be agreed upon in advance.  This way, the ADEA 21-day period to consider the release, or the 45-day period in connection with an exit incentive program or other employment termination program, and the 7 days to revoke can be satisfied before the expiration of that period, and the payment is to be made after executing the release at any time within a 60 (or 90) day period after termination.   In addition, in order to avoid an employee being able to control the year of payment, a provision would also need to be added that if the 60 (or 90) day period begins in one taxable year and ends in the next taxable year the payment will automatically be pushed to the next taxable year.
The IRS had indicated informally and in Notice 2010-6, however, that such a solution may not work, because there would be an impermissible toggle by being able to have a different pay option depending on whether the employee executes the release prior to or after November 1.  The solution the IRS suggested is to require is that regardless of whether the release is executed right away, the severance payment will only be made 60 (or 90) days after termination, provided an irrevocable release is in place by then.  This solution is supported by Notice 2010-6 § VI.B, which provides a documentary correction that if payment is conditioned on the employee executing a release, correction can be made before the permissible payment event occurs by removing the ability of the employee to delay or accelerate the timing of the payment as a result of his or her actions, and fixing the payment date at 60 (or 90) days after the payment event.
v  Note that much of the above requirements only apply if the severance arrangement is subject to § 409A, but if the severance can be paid within the short term deferral period (e.g., it has a safe harbor § 409A good reason definition) or within the two years two times pay exception for involuntary terminations, this would avoid application of § 409A and therefore it would not be subject to the toggle rule relating to § 409A payment events or the straddling of two years.  The release would have a fixed deadline that must be executed and become irrevocable within e.g., 60 (or 90) days, and the severance would have to be paid in all events no later than 2-½ months (to ensure that it is a short-term deferral), or within two years if relying on that exception.
The IRS has retreated somewhat from its position requiring a fixed date, and has determined that the first solution – to set a 60 day (or 90 day) deadline for executing the release and receiving payment and to push the payment date to the next year if this period begins in one calendar year and ends in the next year – would also work.  This position is set forth in Notice 2010-80 that payment of severance can be set as payable within a 60 (or 90) day period following the termination (the permissible payment event), assuming the release and non-revocation has occurred, and provided that if such 60 (or 90) day period begins in the employee’s first taxable year and extends into the employee’s second taxable year, the payment must be made in the second taxable year (or alternatively the payment can be set for the last day of the period as per the method described above).[1]
Transition Relief for Severance with Release through Dec. 31, 2012.  Notice 2010-80 also modifies Notice 2010-6 by providing additional transition relief through December 31, 2012 for plans that contain failures involving payments dependent upon the employee executing a release (and the plan is eligible for correction by December 31, 2010 ), provided that any payments made after March 31, 2011 that could be paid during a period that begins in one taxable year and ends in the subsequent taxable year are made during the subsequent taxable year and provided further that to the extent any amounts remain deferred under the plan, the plan is amended to be compliant by no later than December 31, 2012.[2]
Certain Linked Plans and Stock Rights are Included in Documentary Corrections.  Notice 2010-80 amends Notice 2010-6 to provide that the documentary corrections can be utilized: (i) by linked plans (nonqualified plans linked with qualified plans) with document failures if the linkage does not affect the time and form of payment of amounts under the plans; and (ii) by stock rights (stock options and stock appreciation rights) that were intended at the time of grant (or upon a modification pursuant to applicable transition relief) to be subject to and compliant with § 409A but that have a plan document failure.[3]
Relief Regarding Information and Reporting Requirements for Operational Corrections.  Notice 2008-113 provides information and reporting requirements by the employee and employer to make the operational corrections.  For example, with respect to same year corrections, Notice 2008-113 provides that the employer must attach to its federal income tax return for its taxable year in which the failure occurred a statement entitled “Section 409A Relief under Section IV of Notice 2008-113” with specific information about the correction, and the employer must provide to each affected employee a similar statement by the W-2 due date.[4]  Notice 2010-80 amends this provision so that notice to the employee is not required for corrections in the same year of error.[5]
Relief Regarding Information and Reporting Requirements for Documentary Corrections.  An employer with respect to any of the corrections in the notice must attach to its corporate tax returns and to the W-2’s and 1099’s for the year of failure an exhibit entitled “409A Document Correction Under § ___ of  Notice 2010-6,” which must include certain information about the correction.[6]  The affected employees must also be provided with a statement that the employee is entitled to the relief provided in the applicable provision in Notice 2010-6 with respect to a failure to comply with § 409A, and containing the above information about the correction, and that the employee must attach a copy of the statement to his or her income tax return for the taxable year in which the failure was corrected.[7]  Notice 2010-80 modifies Notice 2010-6 to provide that this statement is not required to be furnished by the employer to the employees and is not required to be attached by the employees to their tax returns with respect to transition relief corrections that may be made prior to Dec. 31, 2010, 2011 or 2012, as applicable,[8] although the employer is still required to attach the statement to its return.[9]
Prompt Attention.  If you are unsure if your documents or procedures need corrections, prompt attention is advisable, as certain of the transition rules for corrections end on December 31, 2010. 

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.



[1]       Notice 2010-80 § III.B modifying § VI.B.2 of Notice 2010-6.
[2]       Notice 2010-80 § III.C adding § VI.B.3 to Notice 2010-6.
[3]       Notice 2010-80 § III.A.
[4]       Notice 2008-113 § IX.
[5]       Notice 2010-80 § III.H amending Notice 2008-113 § IX.
[6]       Notice 2010-6 § XII.A.  The attachment describing the documentary correction should set forth the name and tax identification number for each service provider affected by the failure, identification of the plan with the failure, a statement that the document failure is eligible for correction (and identifying the specific section of the notice) and stating the amount involved in the documentary error. Notice 2010-6 § XII.B.
[7]       Notice 2010-6 § XII.C.  The employee must attach to his or her tax return a copy of the above statement regarding the failure. § XIII.D.
[8]       The transition relief corrections are in Notice 2010-6 § XI and in Notice 2010-6 § VI.B.3 (as added by Notice 2010-80).
[9]       Sections III.E, F & G of Notice 2010-80 amending § XII of Notice 2010-6.