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January 31, 2006

SEC Proposed Exec Comp Disclosures – Transition

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 10:38 am

More notes on the SEC‘s 370-page proposed regulations on executive compensation disclosures and related issues, as posted on the agency’s website last Friday afternoon. [No. S7-03-06] The proposed effective dates of the new rules would be based on the date of publication of final regulations in the Federal Register –

  • Forms 10-K and 10-KSB – For fiscal years ending on or after 60 days after publication.
  • Form 8-K – For triggering events on or after 60 days after publication.
  • Proxy Statements – For statements filed on or after 90 days after publication.
  • Registration Statements under the Securities Act, the Investment Company Act, or the Exchange Act – For statements that become effective on or after 120 days after publication.

The proposed Summary Compensation Table changes and disclosures for related person transactions would effectively be phased in over a 3-year period (or over a 2-year period for small business issuers). For instance, for the first year that the new rules apply, the Summary Compensation Table would follow those new rules only for the most recent fiscal year, using compensation numbers as had been determined under the old rules for the preceding years shown in the table.

During the phase-in period, significant disjunctures may occur in the Summary Compensation Table between the compensation amounts under the old rules versus those under the new rules, adversely affecting comparability of the year-to-year numbers during those early years. For example, if a named executive officer participates under one or more defined benefit pension plans, then the total compensation numbers under the old rules exclude those benefits entirely, whereas the total compensation numbers under the new rules include the increase in the actuarial value of those benefits, as described in my previous post here. Although the new disclosure rules do not explicitly require discussion of the transition or phase-in, conceivably the effect of the change to the new rules may be a material factor that should be included in the required narrative discussion accompanying the compensation table.

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SEC Proposed Exec Comp Disclosures – Actuarial Value of Pensions

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 8:15 am

The annual increase in actuarial value of these plans may be a significant element of compensation that is earned on an annual basis, thus we believe it is appropriate to include these values in the computation of total compensation.

My previous posting here focused on the supplemental table and narrative description of post-employment compensation under the SEC‘s 370-page proposed regulations on executive compensation disclosures, posted on the agency’s website last Friday afternoon. [File No. S7-03-06] Among other changes, that supplemental table is to disclose the annual benefits payable under defined benefit pension plans to named executive officers, as contrasted with the generalized table disclosed under the current rules.

Defined benefit pension plans see an even more dramatic change under the Summary Compensation Table. Under current disclosure rules, compensation provided under those plans is not included on the Summary Compensation Table, rather is shown only in the generalized supplemental table. See Instructions to Item 402(b)(2)(v) bullet 2. Under the new rules, pension plans would not only be detailed in the supplemental table, but would also be reflected directly on the Summary Compensation Table. For each year shown for each of the named executive officers, the All Other Compensation Column is to include the increase in the actuarial present value for each plan providing payment of retirement benefits, including qualified plans and non-qualified plans (but excluding any defined contribution plans, for which a separate rule addresses inclusion in the Summary Compensation Table). See Prop. 229.402(c)(ix)(G).

A specific request for comment regarding the All Other Compensation Column questions whether disclsoure for that column would be clearer if it were presented as a supplemental table with separate columns for each element of the “all other compensation” category, including a separate column for the increase in pension actuarial value.

Since the increase in actuarial value of the defined benefit pension plans is included in the All Other Compensation Column, of course that amount is also then included in the Total Compensation Column. Accordingly, that amount is included in the amount used to rank the highest 3 officers (other than the PEO and PFO) for whom compensation disclosures are required.

Narrative discussion accompanying the Summary Compensation Table is to include information on material assumptions used for the determination of actuarial values.

No guidance is suggested regarding the selection of the actuarial assumptions to be used for the calculation of the actuarial value, nor whether the effect of a change in any assumption is to be included in the change in actuarial value as compensation for an executive.

January 29, 2006

SEC Proposed Exec Comp Disclosures – Pensions and Other Post-Employment Compensation

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 10:35 pm

Further notes on the SEC‘s 370-page proposed regulations on executive compensation disclosures, posted on the agency’s website this past Friday. [File No. S7-03-06]

The proposed regulations include significant revisions to disclosure of post-employment compensation covering named executive officers

  1. Defined Benefit Pensions – For both qualified and non-qualified defined benefit plans, a revised pension table and enhanced narrative disclosure will be required. Tabular disclosures will show information for each named executive officer, verus the generalized numbers shown under the current rules.
  2. Defined Contribution Plans – For non-qualified defined contribution plans and other deferred compensation, a table and narrative disclosure will be required. Tabular amounts are to include contributions, earnings, and balances.
  3. Termination Arrangements – For compensation arrangements triggered upon termination or change of control, revised disclosures will be required.

Defined Benefit Pensions – Current disclosure rules use a general table showing annual benefits at retirement for specified compensation levels and years of service, without showing amounts for any specific executive. Disclosures under the new rule are to include a new table that will show for each named executive officer the estimated annual retirement payments under all defined benefit plans sponsored by the company. [Prop. 229.402(i)] The table must include a separate row for each retirement plan in which the executive participates, including tax-qualified defined benefit pension plans and supplemental employee retirement plan (e.g., excess plans designed to provide benefits otherwise not provided under the qualified plan due to limits under IRC 415). In addition to showing annual benefits payable at normal retirement age, amounts payable at early retirement must also be shown if available. The annual amounts disclosed should reflect the optional form of benefit currently elected by the named executive officer, such as joint and survivor annuity or single life annuity. If the executive is not yet eligible to retire, then the annual retirement benefit should be estimated assuming that the individual will continue to receive the same amount of compensation as reported in the company’s most recent fiscal year.

Following the retirement plan table, the disclosure is to include a narrative description of the material factors relevent to an understanding of each plan included within the tabular information, including but not necessarily restricted to –

  • Material terms and conditions of benefits available under the plan.
  • Specific elements of compensation included in determining retirement benefits under the plan’s benefit formula.
  • The amount of any lump sum cashout of benefits available as of the end of the most recent fiscal year, if any, disclosing the valuation method and assumptions used for determination of that amount.
  • For participation by an executive in multiple plans, the basis for participation in each of those plans.
  • Company policies regarding matters such as granting extra years of credited service under any of the plans.

Defined Contribution Plans – Under the proposed regulations, disclosure is to include a new table for non-qualified defined contribution plans and other non-qualified plans of deferred compensation, for each such plan showing employer contributions, earnings, and balances. [Prop. 229.402(j)] By contrast, current rules require disclosure of compensation under those plans only when earned; and currently, only above-market earnings are shown. To provide a basis for avoiding double-counting of deferred amounts as compensation, a footnote to this table would show the extent to which contributions and earnings are reported as compensation in the current fiscal year, together with the extent to which balances were previously reported in the Summary Compensation Table in prior years.

Following the deferred compensation table, the disclosure is to include a narrative description of the material factors relevent to an understanding of the information shown within the tabular information, including but not necessarily restricted to –

  • Types of compensation permitted to be deferred.
  • Material terms regarding payments, withdrawals, and other distributions.
  • Measures for calculation of interest or earnings, including an indication of the executive’s control over the selection of that measure.

Termination Arrangements – Under the proposed rules, disclosure is to include a narrative discussion of the specifric elements of any arrangement, whether written or unwritten, that provides for payments in connection with the resignation, severance, retirement, or other termination of a named executive officer. [Prop. 229.402(k)] Details must also be included regarding payments that would made in connection with a change in responsibilities of a named executive officer or a change in control of the company. Information is to include –

  • Specific circumstances that would trigger payment.
  • Specific factors used to determine the payment amount and form under each termination circumstance.
  • Estimated payments that would be made under each termination circumstance, including whether those amounts would involve a lump sum distribution or periodic payments. If uncertainties exist regarding the provision of the termination arrangements or the amounts under those arrangements, then reasonable estimates should be made. Material assumptions underlying any estimates should be disclosed.
  • Any material conditions or obligations, such as non-compete, non-solicitation, non-disparagement, and confidentiality covenants. Information of the duration for any condition should also be disclosed.
  • Any other material feature necessary to an understanding of the termination arrangements.

Next up, I’m going to be probing through the new rules for the Summary Compensation Table more closely. I’ve been through the entire package at least 4 full times now, even more for the pension and benefit sections I’ll be focusing most of my attention on in practice. I’ve noted several other blogs finally picking up on the topic today, although there’s still precious little commentary yet.

SEC Exec Comp Regs – Named Executive Officers

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 9:27 am

Still only on my second, more in-depth reading through the 370 pages of the SEC’s proposed regulations on executive compensation disclosures released this past Friday. [File No. S7-03-06] I’m feeling somewhat lonely: so far I’ve not yet seen another word out there on the actual proposed reg text, not from any of the business press nor from any of the blogs I read nor from any other commentator, nothing yet beyond what we had known from the Commission meeting earlier in the month, that and some early rumors on the exceptions that were expected to be extended to foreign issuers. Ah well, at least the solitude gives me more time to be plodding through the proposed regs, at least for now. I’m sure by tomorrow, when I’m expecting the text to emerge through the Federal Register, I’ll have more than enough external traffic to be digesting on this.

OK, a few more notes on pieces I’ll need to be dealing with in my corner of the exec comp room: named executive officers for whom the new compensation disclosures will be required. [Prop. 229.402(a)(3)] For most filers, the count won’t increase, but the particular executives might. There are to be at least 5 –

  • Principal Executive Officer – Regardless of compensation level. All individuals serving in the PEO capacity during the final fiscal year shown in the compensation disclosure would be included, even if not serving in that capacity as of the end of the last fiscal year.
  • Principal Financial Officer – Regardless of compensation level. And similar to the PEO rule, all individuals serving in the PFO capacity during the final fiscal year shown in the compensation disclosure would be included, even if not serving in that capacity as of the end of the last fiscal year. Under the proposed rules, the PFO would be a named executive officer even if not the highest paid officers in the company, in contrast with the current rules that look to the PEO and the 4 highest paid other officers.
  • Next 3 Highest Paid – Ranked on the basis of the total compensation to be disclosed under the new rules, the highest paid 3 individuals serving as officers as of the end of the last fiscal year, other than those identified under the PEO or PFO rules. Disclosure will be required for up to 2 additional individuals who would have been included in this subset but for the fact that they were not serving as officers as of the end of the last fiscal year. Disclosure is not required for any officer (other than the PEO or PFO) whose total compensation does not exceed $100,000.

It may also be necessary to include as a named executive officer one or more executive officers of subsidiaries of the company. Conversely, it may be appropriate to exclude an individual (other than the PEO or PFO) whose compensation includes cash payments relating to overseas assignments.

For small business issuers, named executive officers will be limited to the CEO and the 2 highest paid other officers. [Prop. 228.402(a)(2)]

Overpayment Reimbursement Method Approved by Oregon PERS

Filed under: PERS — Fuguerre @ 8:11 am

Oregon PERS Information reports on the Oregon Public Employees Retirement Board’s unanimous adoption this past Friday of repayment methods for overpayments relating to Strunk v. Public Employees Retirement Board [OR Sup.Ct., SC S50593, 3/8/05] from “window retirees” who retired from Oregon public service between April 1, 2000, and March 31, 2004. Amounts that are not voluntarily repaid in a single lump sum are to be deducted from annuitants’ monthly benefit checks. [Oregon Administrative Rule 459-005-0610, as revised. Adoption of OAR 459-005-0610, Recovery of Overpayments, pp 85ff]

On January 17, a class action lawsuit was filed in Multnomah Circuit Court by retirees seeking to block the repayment plan. [Arken v. City of Portland] As pointed out by Oregon PERS Information, retirees will also be able to challenge the detailed invoices that will be sent out by the retirement system.

January 28, 2006

SEC Publishes Proposed Regs on Exec Comp Disclosures

Filed under: Executive Compensation, SEC — Fuguerre @ 2:15 pm

The Securities Exchange Commission has published its proposed regulations on disclosures of executive compensation, related party transactions, director independence, and other corporate governance matters. [File No. S7-03-06]

The proposed compensation disclosure rules are intended to improve information reported about the compensation of named executive officers.

  • The Summary Compensation Table will include disclosure of a single figure for total compensation.
  • The compensation tables will be required to include all elements of compensation.
  • The detail provided by the compensation tables will be expanded.
  • Narrative discussion and analysis will be required.

More, much much more to come soon. 370 pages to pore through here, and so far I’ve only been through it one pass (although my copy is already littered with red scribblings)…

New Electronic Version for PBGC Form 4010

Filed under: PBGC — Fuguerre @ 7:01 am

A new electronic form is available for filing of PBGC Form 4010. ERISA 4010 requires pension plans with $50 million or more of underfunded vested benefits to provide the agency with additional information beyond that submitted on the annual Form 5500. For information years ending on or after December 31, 2005, Form 4010 must be filed electronically via the e-4010 application. (See the e-4010 filing instructions and e-4010 screen shots.)

Revisions to the e-4010 include an option permitting assignment of an actuary who would be able to access the filing’s Schedule P, the plan’s actuarial information. Also, data on previous e-4010 filings would be directly available as a starting point for filings in subsequent years. [Overview of e-4010 filing requirements]

As noted in a previous BeneBlog post, separately the PBGC has provided interest rate relief for the 4010 gateway for information years ending 1/1/2006 through 6/30/2006.

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