Deferred-Compensation Regulations Announced ! CEO's Rejoice! More Of The Same!

Further proof that although elected and appointed political civil servants are given the authority, the elite ruling class still make the rules. It all goes back to 1215 and the Magna Carta. The wealthy landowners acknowledged the King and his authority, but made the monarchy recognize the rule-making authority of the wealthy, elite class. Whether deluded Americans think they're "free" or not; we've been living under this type of rule since the inception of this country.


Wall Street Journal

Executives and other highly compensated employees can breathe a sigh of relief now that the Treasury Department has released its deferred-compensation regulations.

Nearly four years in the making and 400 pages long, the rules were first drafted after the Enron debacle, and have gone through more than 2½ years of interim regulations, lobbying from employer groups and guidance from tax officials.
Experts are still combing through the legalese, including a 100-plus-page summary of changes from the previous proposed rules. But a primary fear of the benefits industry -- that many types of executive compensation, such as severance pay and stock options, would be snared in the more restrictive deferred-compensation rules -- has been largely allayed.
"I would say the regulations have in many ways increased flexibility for employers," said Elizabeth Buchbinder, a principal at Ernst & Young's national tax department in Washington.
In short, the new rules will let hundreds of thousands of executives who defer their compensation continue to enjoy big tax breaks without facing additional restrictions beyond those in place in recent years, experts say.
Deferred-compensation plans, which are nearly universal at large U.S. companies, broadly let highly paid employees put off receiving some or all of their pay until they leave their job or retire. Plans typically pay interest -- sometimes at high, guaranteed rates -- or investment returns, and some match executive deferrals.
Most important for the executives, deferred compensation isn't taxed until it is received, which essentially lets them shelter much of their income from state, local and federal income taxes.
To enjoy this tax benefit, the money must not be received or controlled by the executive, which is why money taken early is typically subject to a penalty, plus taxes.
But during the 1990s, a variety of techniques sprang up to give at least some executives ready access to their deferrals and investment income with little or no delay or penalty, practically transforming many of the plans into tax-sheltered checking accounts, in the eyes of critics.
What's more, to qualify for tax deferral, deferred compensation has to be "at risk," meaning that the executive doesn't control it. The accounts are purely hypothetical, an IOU on company books that isn't backed by actual cash or investments. If the company fails, participants must stand in line with other creditors.
However, Enron's demise showed that executives could get around these restrictions; many withdrew millions out of the deferred-compensation plan in the months leading up to the company's bankruptcy-court filing.
Others couldn't, and they lost most or all of their deferred-comp savings. In the months that followed, members of Congress heard extensive testimony about arrangements that many companies were using to protect executives from risk.
In 2004, Congress cracked down on the so-called haircut provisions that let executives collect their savings on short notice by paying a penalty as small as 3% or 5%, as well as financial triggers and offshore trusts designed to shelter assets in the event of corporate failures.
The measure, in the American Jobs Creation Act, made deferred-compensation benefits immediately taxable as income, plus a 20% surtax if they used these techniques.
The regulations released yesterday cast a broad net, and the benefits industry worried that other executive benefits, including stock options and severance benefits, would be counted as deferred compensation and would be subject to the same restrictions that prevented deferred compensation abuses.
The new regulations make it easier for executives to collect severance without triggering the restrictions in the deferred-compensation law.
Under previous drafts, the restrictions applied to any severance that the executive could receive by leaving voluntarily; the new rules exempt severance collected if an executive resigns after being pressured to quit in certain ways.
The regulations also let companies give departing executives more time to exercise their stock options without triggering the deferred-compensation restrictions.
Earlier versions of the rules imposed the restrictions -- and potentially the 20% penalty -- if executives had more than about 90 days to exercise their options. Now, options can be exercised as late as 10 years after the original grant date and still be exempt from the deferred-comp rules, benefits-industry officials said.
Not all the news was good, many consultants and attorneys said.
The new regulations say payments to departing executives in return for noncompetition commitments may be subject to the deferred-compensation restrictions, complicating the drafting of such agreements going forward.
"You'll just have to take a lot more care," said Bryan Tyson, a benefits attorney with Womble Carlyle Sandridge & Rice PLLC in Charlotte, N.C.
But Mr. Tyson said the biggest benefit of the new regulations may simply be certainty, after nearly three years of ever-changing guidance.
"There's some closure to this," he said.