Changes to Nonqualified Deferred Compensation Provisions contained in the manager's amendment to the Jumpstart Our Business Strength (JOBS) Act (S. 1637)
Courtesy of Groom Law GroupAlso, they made a few technical drafting changes, including new language on p. 45, lines 21-23 (clarification that the NQDC investment options must be comparable to those under the defined contribution plan of the employer that meets the requirements of 401(a) (including a trust exempt from taxation under sec. 501(a)) and has the fewest options).
- p. 46, lines 17-18
— As Cathy pointed out, they changed the election period requirement to require the election in the year before the year services are performed instead of the year compensation is earned. This makes the Senate version consistent with H.R. 2896 and more like the IRS ruling position set forth in Rev. Procs. 71-19 and 92-65. Cathy and I talked yesterday about this being a tightener because it takes away the argument that, e.g., in the case of a multi-year incentive payment/bonus, the election may be made at a later time because the compensation has not yet been earned. Now, it is clear the election has to be made before the services are performed. (Of course, neither version is great since I believe that most of the existing arrangements that permit elections to be made some time after the year in which services are performed has begun rely on the fact that the election is made some period of time before the payments are payable and/or determinable.)
- p. 52, line 13 thru p. 53, line 3
— The 457 change Lynn pointed out, which provides that the new rules do not apply to nonelective deferred compensation of non-employees
- p. 54-56
— This draft has a different version of the application of the golden parachute provisions to payments to sec. 16 insiders within a year of a change in control. On initial glance, it looks like it generally contains the same content but (1) provides more coordination rules with other "parachute payments" for purposes of applying the golden parachute rules, and (2) provides an exception for payments made because of death or disability.
- p. 58, line 24 thru p. 59, lines 1-8
— Revises the prohibition on deferrals of stock option gains and restricted stock gains to (1) change the reference to "taxpayer elects to exchange" to "taxpayer exchanges" — this appears to be a tightener to apply the prohibition even where the company or, e.g., an acquisition agreement, provides for the "exchange" for a deferred comp account instead of giving the individual an election; and (2) revises the language to also apply to exchanges of "employer securities" (not just exchanges of property based on employer securities transferred to the taxpayer") — not clear, but this appears to be intended to clarify that the prohibition applies to restricted stock held by the individual, not just property based upon employer stock that has been transferred to the taxpayer.(This draft also contains an amendment to IRC sec. 420 transfers of excess assets to retiree health accounts rules to provides exceptions to the minimum cost rules for "insignificant cost reductions".)