BENEFITS BYTE

March 31, 2004
BB 04— 41

In this issue:

  • LSA Proposal Introduced
  • FASB Proposal Requires Stock Option Expensing

LSA Proposal Introduced

On March 31, Senator Craig Thomas (R-WY) and Representative Sam Johnson (R-TX) introduced a legislative proposal creating Lifetime Savings Accounts (LSAs), closely tracking the initiative suggested by the President in January 2003 and revised in his 2004 budget.

Under this legislation, individuals would be permitted to make annual contributions of $5,000 (indexed for inflation) to an LSA without any age or income eligibility requirements. Contributions would not be tax deductible, but earnings will accumulate and be distributed tax-free. Distributions may be made tax-free at any time from the LSA, without a holding period. Education savings accounts and some other miscellaneous savings accounts will be rolled in to the LSA proposal. Defined benefit plans are not affected by the proposal.

This LSA proposal is the first of three savings-related bills to be introduced over the next several weeks. Proposals for Retirement Savings Accounts (RSAs) and Employer Retirement Savings Accounts (ERSAs) are now being drafted. For more information, contact Diann Howland, Council vice president, retirement policy, at (202) 289-6700.

FASB Proposal Requires Stock Option Expensing

On March 31, the Financial Accounting Standards Board (FASB) issued a proposed Statement, Share-Based Payment, requiring companies to expense stock options awarded to employees. The proposal would also require companies to expense the discount (which can be up to 15 percent) for employee stock purchases under Employee Stock Purchase Plans (ESPPs). The deadline for comments on the proposal is June 30, 2004, and the proposal's planned effective date is January 1, 2005.

In related news, Representative Richard H. Baker (R-LA), chairman of the Capital Markets Subcommittee of the House Committee on Financial Services, announced that members of his panel will hold a hearing entitled "The FASB Stock Options Proposal: Its Effect on the U.S. Economy and Jobs" on April 21. Baker introduced the bipartisan Stock Option Accounting Reform Act (H.R. 3574) on November 21, 2003, with 85 cosponsors. This legislation would generally require companies to expense stock options granted to chief executives and the next four highest paid officers, but preclude expensing of stock options awarded to other employees until an economic impact study is completed. The aim of the bill is to preserve broad-based employee stock option plans and to address the economic implications of stock-option expensing. The Council, along with other business groups, has sent a letter to Baker and other representatives in support of the bill. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.