September 30, 2004
In this issue:
- Conference on Deferred Compensation Legislation Could Finish Before Election
- House Financial Services Committee Approves Extension of Terrorism Risk Insurance Program
Conference on Deferred Compensation Legislation Could Finish Before Election
Despite earlier reports to the contrary, it appears the House of Representatives and the Senate could complete the conference to reconcile the differences between versions of the international tax bill (the American Jobs Creation Act (H.R. 4520) from the House and the Jumpstart Our Business Strength (JOBS) Act (S. 1637) from the Senate) before leaving for the election. Both bills include provisions requiring significant changes to current deferred compensation practices, raising between $800 million and $1 billion over a 10 year period. (A side-by-side review of both bills' deferred compensation proposals is available on the Council Web page.)
A discussion draft, which includes only provisions which are identical in both bills, was released yesterday, with amendments to that draft due by the end of today. House Ways and Means Committee staff have indicated that the negotiations over the provisions of the final bill could be concluded as early as next week. Though the deferred compensation provisions do not appear in the discussion draft, staff members for House Ways and Means Committee, the Senate Finance Committee, the Joint Committee on Taxation and the Treasury Department have met to discuss those provisions and indications are that they would likely be added to a final bill.
The Council is continuing to advocate for significant changes to the proposed legislation with respect to several key issues. Though it appears likely that the final language will include a prospective effective date (deferrals after December 31, 2004 if passed this year) it is important to continue to urge the conferees to include adequate transition rules. There remains concern that the grandfather rule for past deferrals (accruals) will be insufficient to permit companies to continue to allow additional deferrals as is commonly practiced. There is some indication that one additional deferral election may be permitted, but a change in the form of distribution would be considered an election and no other additional deferral would be permitted with respect to those deferrals.
Another key concern is the definition of "deferred compensation plan," which is likely to not exclude supplemental and excess benefit plans as well as most forms of equity compensation. Common stock option plans were not intended to be covered by the definition and a clarification is likely to be added. Discounted stock options and restricted stock unit programs will continue to be included in the definition at this point. Inclusion of stock appreciation rights programs is uncertain.
The Council has prepared a number of materials for your use in communicating your concerns to your congressional representatives:
- a list of key issues and proposals
- additional technical issues and proposals
- general talking points on nonqualified provisions
- talking points on stock appreciation rights
- talking points on equity compensation
- talking points on restricted stock unit programs
- talking points on supplemental pension programs
It is unclear whether the additional provision in S. 1637 prohibiting the deferral of gain from stock option plans or vesting in restricted stock units will be retained in the final bill, but if the definition includes restricted stock unit programs there may be less pressure to include the additional provision. The outcome of the Senate bill provision mandating that investment choices in non-qualified plans be comparable to those provided in the company's qualified defined contribution plan remains undecided as well, but it appears that a less onerous alternative is being considered.
An Action Alert describing the key issues more fully is available on the Council Web site. For more information contact Lynn Dudley, Council vice president and senior council, or Diann Howland, Council vice president, retirement policy, at (202) 289-6700.
House Financial Services Committee Approves Extension of Terrorism Risk Insurance Program
On September 29, the House Financial Services Committee approved a bill to extend the Terrorism Risk Insurance Act through 2007 (P.L. 107-297) and expand the program to cover group life insurance. The law, signed in 2002, established a three-year Terrorism Insurance Program in the Department of the Treasury, administered by the Secretary of the Treasury, to pay the federal share of compensation for insured losses resulting from acts of terrorism. The program was set to expire at the end of 2005. Senator Richard Shelby (R-AL), who chairs the Senate Banking Committee, said he will hold hearings next year on whether to extend the law. For more information contact Lynn Dudley, Council vice president and senior council, at (202) 289-6700.
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.