U.S. Senate Panel OKs Deferred Comp Limit

January 17, 2007 (PLANSPONSOR.com) - The U.S. Senate Finance Committee on Wednesday approved by voice vote a measure that could limit the earnings corporate executives can defer into non-qualified deferred compensation (NQDC) plans.

The measure restricting NQDC arrangements was part of  a series of items lawmakers hope can raise enough revenue to offset the cost of a package of small-business tax incentives. Among other things, the incentives would extend credits for employers who hire former welfare recipients and change the tax code to simplify bookkeeping for certain companies.

The overall package came from Chairman Max Baucus (D-Montana) and the panel’s senior Republican Senator Charles E. Grassley ofIowa and carries a price tag of $8.3 billion over 10 years. The deferred comp provision was estimated to generate $307 million over five years and $806 million over 10 years. All in all, deferred comp and other tax provisions are estimated to generate more than $8 billion over a decade.  

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Under the deferred comp  plan as it now stands, any deferred comp over the lesser of $1 million or average taxable compensation for last five years would be immediately includible in income and subject to 20% additional tax as under the 409A rules. Washington attorney Brigen Winters, of the Groom Law Group, said the measure’s definition of nonqualified deferred comp could ultimately be extremely broad, similar to the current 409A definition.

In addition to deferred comp being broadly defined, Winters said the provision’s cap could potentially come in at under $1 million, which could affect managers below the top of corporations. “It’s not just top execs,” Winters said.

Limiting deferred compensation would be “earthshaking” to American executives, Patrick McGurn, executive vice president of Institutional Shareholder Services, told the Washington Post.

“A lot of executives are deferring the lion’s share of their compensation these days, and the typical executive at a Fortune 100 company makes well over $1 million,” according to McGurn. He said there is a huge amount of compensation that executives would defer that will not be allowed to be deferred if the tax code were changed.

Winters said it appeared politically likely the deferred comp provision would survive a trip through the Senate.

The proposal is effective for amounts deferred in taxable years beginning after December 31, 2006, according to Senate documents. The proposal directs the Treasury Department to issue guidance allowing existing outstanding deferral elections to be modified on or before December 31, 2007.

UK Regulators Ban Ericsson Pension Chair for Misdeeds

January 16, 2007 (PLANSPONSOR.com) - UK pension regulators have banned the chairman of the Ericsson pension fund from getting involved with any trust-based pension after finding that he had lied about executive benefits and benefited from conflicts of interest.

The Pensions Regulator announced the move against David John Foster, an Ericsson human resources manager, in a  news release .Ericsson is a global telecommunications equipment and services provider that is based inStockholm, Sweden.

After being alerted to potential problems by a whistleblower’s report, the Pensions Regulator appointed an Independent Trustee to the Ericsson plan to secure funds and begin an investigation into Foster’s conduct, according to the announcement. The new trustee cancelled planned executive transfers and arranged to hold a second pension for Foster pending an inquiry. Two transfers worth £2.46 million, which had already been paid, were recovered by Ericsson.

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According to the regulators, as chairman of the Trustees of the Ericsson Employee Benefits Scheme, Foster misrepresented the pension benefits of executive members to Ericsson senior management. The representations added as much as £13.4 million to transfer values, increasing pension liabilities of the final salary plan and the sponsoring employer, the officials said.

Foster falsely claimed that executive members’ benefits accrued at a 1/30th rate and were entitled to receive unreduced benefits from the age of 50 – a benefit level he said already existed. The regulators said, however, that such a move would have required approval from Ericsson.

Finally, according to the news release, Foster stands accused of also accepting for himself an “exceptionally favorable” second deferred pension, which had the potential to affect the benefits of other plan members, without informing or seeking approval from other trustee directors.

The panel also found that Foster had failed to properly identify and handle conflicts of interest arising from his roles as chairman of the corporate trustees and as human resources manager. Foster excluded other trustee directors from significant decisions and failed to interact with them to the extent that some trustees were neither aware of the existence of the executive scheme, nor of its financial impact.

Foster was appointed as a director of Ericsson Employee Benefits Scheme Limited in November 2002, and was chairman of the scheme’s board of directors between July 2004 and September 2005 when he resigned.

The actions for which Foster was disciplined took place between April 2004 and June 2005. The Pensions Regulator was alerted by a whistleblower’s report on July 1, 2005 and appointed an independent trustee on July 7, 2005.

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