Corporate

Executive Compensation

Tax Rules


Bills Passed in the House or Senate

  • A bill (S. 1) was passed in the Senate on December 2, 2017 by a vote of 51-49 that would: (i) (A) extend the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution, (B) repeal the special rule that allows IRA contributions to one type of IRA (either traditional or Roth) to be recharacterized as a contribution to the other type of IRA, (C) apply a single aggregate limit for contributions to 403(b) plans and 457(b) plans, (D) repeal current rules allowing additional elective deferrals and catch-up contributions to 403(b) plans and Section 457(b) plans, (E) repeal the rule allowing employer contributions to 403(b) plans for up to five years after termination of employment, and (F) allow Section 529 plans to be used for expenses relating to students at public, private and religious elementary and secondary schools, and for students that are home schooled; (ii) (A) repeal key exceptions to the $1 million limitation on the deductibility of compensation under Section 162(m), (B) impose an excise tax of 20% on compensation in excess of $1 million and on "parachute" payments paid by a tax-exempt organization to certain of its employees, (C) cause Section 83(b) elections to be no longer be available with respect to restricted stock units, (D) allow certain employees of certain non-publicly traded corporations that settle stock options to defer income recognition for five years and (E) generally require a three-year holding period in order for service providers to have long-term capital gains from carried interests granted with respect to real-estate and investment businesses; (iii) (A) repeal the exclusion from income for qualified moving expense reimbursement, (B) repeal the exclusion from income for qualified bicycle commuting reimbursements; and (iv) reduce the penalty for failure to purchase health insurance coverage enacted as part of the Affordable Care Act to zero.

  • A bill (H.R. 1) was passed by the House of Representatives on November 16, 2017 by a vote of 227-205 that would (i) (A) make certain modifications to the nondiscrimination rules governing tax-qualified retirement plans, (B) permit in-service distributions under tax-qualified "pension" plans and Section 457(b) governmental plans at age 59-½, (C) direct Treasury to modify regulations preventing a participant from continuing to make deferrals after the receipt of a hardship distribution, (D) allow earnings in certain plans to be distributed on account of hardship, (E) extend the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution, (F) repeal the special rule that allows IRA contributions to one type of IRA (either traditional or Roth) to be recharacterized as a contribution to the other type of IRA and (G) allow up to $10,000 per year under a Section 529 plan to be used for expenses relating to students at private elementary and secondary schools, and allow parents to establish Section 529 plans for unborn children; (ii) (A) repeal key exceptions to the $1 million limitation on the deductibility of compensation under Section 162(m), (B) impose an excise tax of 20% on compensation in excess of $1 million and on "parachute" payments paid by a tax-exempt organization to certain of its employees, (C) cause Section 83(b) elections to no longer be available with respect to restricted stock units and (D) generally require a three-year holding period in order for service providers to have long-term capital gains from carried interests granted with respect to real-estate and investment businesses; and (iii) (A) limit the amount that may be excluded from gross income for employer-provided lodging and (B) repeal the exclusions for (I) dependent care assistance programs, (II) qualified moving expense reimbursements, (III) adoption assistance programs and (IV) employee achievement awards (and repeal the deduction limitation for such awards).

Bills Introduced in the House or Senate

  • The Tax Cuts and Jobs Act was signed into law by President Trump on December 22, 2017 that: (i) (A) extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution and (B) allows the conversion of IRA funds from a traditional IRA to a Roth IRA, but disallows other IRA conversions; (ii) (A) repeals key exceptions to the $1 million limitation on the deductibility of compensation under Section 162(m) (but provides a transition rule for grandfathered agreements), (B) revises the definition of “covered employee” under Section 162(m) and provides that once an employee qualifies as a covered employee, the deduction limitation will apply so long as the corporation pays remuneration to the employee (or to any of the employee’s beneficiaries), (C) expands the definition of “publicly held corporation” for Section 162(m) purposes to include any company that has reporting obligations under Section 15(d) of the Securities and Exchange Act of 1934, (D) imposes an excise tax of 21% on compensation in excess of $1 million and on "parachute" payments paid by a tax-exempt organization to certain of its employees, (E) imposes Section 162(m)-like provisions on tax-exempt organizations, (F) imposes Section 280G-like provisions on tax-exempt organizations, (G) expressly makes Section 83—including  the Section 83(b) deferral rules—generally inapplicable to restricted stock units, (H) allows certain employees of certain non-publicly traded corporations that settle stock options or restricted stock units in the form of stock to defer income recognition for five years, and (I) generally requires a three-year holding period in order for service providers to have long-term capital gains from carried interests granted with respect to real-estate and investment businesses; (iii) (A) suspends the exclusion from income for qualified moving expense reimbursements, (B) suspends the exclusion from income for qualified bicycle commuting reimbursements and (C) allows Section 529 plans to be used for expenses relating to students at public, private and religious elementary and secondary schools, and for students that are home schooled; and (iv) reduces the penalty for failure to purchase health insurance coverage enacted as part of the Affordable Care Act to zero.
Disclosure-Related and Other Securities Rules

 

Legislation

  • The Financial CHOICE Act of 2017 (H.R. 10), sponsored by Rep. Jeb Hensarling (R-TX), would, among other things, make substantial changes affecting the executive-compensation rules under Dodd-Frank. Included within the bill are provisions that would (i) repeal the pay-ratio disclosure provision; (ii) amend the say-on-pay requirement to require a shareholder vote “each year in which there has been a material change to the compensation of executives of an issuer from the previous year” (instead of at least once every three years); (iii) repeal the say-on-frequency vote requirement; (iv) repeal certain rules relating to incentive-based compensation disclosure; (v) modify the Dodd-Frank no-fault clawback for erroneously awarded compensation; and (vi) repeal certain rules relating to employee/director hedging disclosure. The bill was introduced in the House on April 26, 2017 and was subsequently approved by the House Financial Services Committee on May 4, 2017 by a vote of 34-26.

Administrative Action

  • On February 6, 2017, the acting Chairman of the SEC issued a public statement, captioned "Reconsideration of Pay Ratio Rule Implementation," seeking public comment within 45 days on the so-called "pay ratio" disclosure rule, presently set to apply to issuers’ first fiscal year beginning on or after January 1, 2017. SEC staff is directed to reconsider implementation and to determine whether additional guidance or relief may be appropriate.

Dechert published a Newsflash addressing the foregoing, which may be viewed here.

Legislative and Administrative Reports

  • Report of the U.S. Department of the Treasury issued in June 2017, titled A Financial System That Creates Economic Opportunities: Banks and Credit Unions, recommends that the Consumer Financial Protection Bureau engage in rulemaking to update the Loan Originator Compensation Rule - which had been updated in 2013 to prohibit certain compensation arrangements for loan originators - to establish clear standards to ease the burden of correcting non-material errors.
  • Report of the U.S. Government Accountability Office to the Chairman, Subcommittee on Economic Policy, Committee on Banking, Housing, and Urban Affairs, U.S. Senate‎, titled "Corporate Shareholder Meetings - Proxy Advisory Firms’ Role in Voting and Corporate Governance Practices," released November 15, 2016.

Executive Orders

  • Executive Order dated February 3, 2017. Relates to the scaling back of the regulatory regime applicable to the financial industry.
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