Stock-based Compensation Linked to Higher Shareholder
Returns
November 30, 2000 (PLANSPONSOR.com) - The more
stock-based compensation, the higher the total shareholder
return, according to a new study by Hewitt
Associates.
The Hewitt Associates Ownership Intensity and Firm
Performance Study found that from 1995 – 2000, the top half
of companies surveyed had an average cumulative shareholder
return that was 16% higher than the rest of the 173
companies. In comparing the companies in the top 25%
to the bottom 25%, the study found a return gap of more
than 65% on average.
Hewitt surveyed 173 major corporations across the
nation, ranking them using Hewitt’s “Ownership Intensity
Index”, which is the ratio of a firm’s stock-based
incentive compensation to its market value.
October 18, 2001 (PLANSPONSOR.com) ? Defined benefit
plan administrators should assume that the liberalized dollar
limit under Section 415 remains in effect for plan years
after December 31, 2010, Internal Revenue Service officials
said this week.
As a result, when figuring projected defined benefit
amounts, plan sponsors should ignore a sunset provision
enacted this summer as part of tax-cut legislation that
calls for a return to earlier laws as of 2011, the IRS said
in Revenue Ruling 2001-51.
Tax code Section 404(j) provides that benefits or
contributions in excess of Section 415 limitations are not
taken into account in computing allowable deductions under
Section 404(a).
“Until further guidance is provided, a participant’s
benefit will be tested for the satisfaction of the Section
415 limitations using the limits currently in effect and
applicable to the participant,” IRS said.
The sunset provision has caused controversy in the
employee benefits industry because many defined benefit
plan calculations have a scope of several years and
professionals have been uncertain how to treat the sudden
law change in 2011.
The Economic Growth and Tax Relief Recovery Act of 2001
increased under tax code Section 415 the maximum defined
benefit from $90,000 to $160,000, indexed for
inflation.
It also upped annual contributions to a defined benefit
plan from $35,000 or 25 percent of compensation in 2001 to
$40,000 or 100 percent of compensation beginning in
2002.
For purposes of nondiscrimination testing, increased
benefits provided to an employee under a defined benefit
plan as a result of Section 415 increase must be included
as increases in the employee’s accrued benefit and most
valuable optional form of payment, and in the computation
of both the normal and most valuable accrual rates for any
measurement period that includes the year of the
increase.
Increased contributions to defined contribution plans
must be taken into account for the plan year for which the
increased allocations are made or purposes of
nondiscrimination testing, IRS said.