Swift Guidance Sought On New Deferred Comp Law

The letter, signed by James Klein, president of the ABC, said that employers “remain particularly concerned about the application of the new rules to equity-based programs like stock appreciation rights [SARs] and restricted stock units.”

“Because a number of fundamental questions were left to regulators,” the letter says, “employers are facing an extremely difficult time frame for compliance.”

For example, the letter says there is no statutory definition for when an amount is deferred, says the concept of “performance-based compensation” must be clarified, and that “employers need a more precise grandfather rule for deferred amounts that will be earned and vested prior to the Jan. 1, 2005, effective date.”

The issue is important to the insurance industry, which lobbied strongly for the provision, because a number of nonqualified deferred compensation plans are funded by corporate-owned life insurance.

Because of the time issue, the ABC urges in its letter that Treasury and the IRS write flexible rules so employers can change their deferred compensation arrangements with a minimum of administrative and recordkeeping burdens.

In the letter, Klein said, “Every day employers are raising new issues and questions we believe were never considered during the legislative process, and the full impact of the new law is still being absorbed by the entire business community.”

Klein called the change in the law “dramatic” and said the “extreme penalties imposed for even an inadvertent failure provide good reason to create reliance on a reasonable and good faith standard.”

Reproduced from National Underwriter Edition, November 4, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.