Blogging Employee Benefits

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.

1 Comment »

  1. […] BeneBlog A Pension & Benefits Weblog courtesy of « SEC Proposed Exec Comp Disclosures – Pensions and Other Post-Employment Compensation […]

    Pingback by BeneBlog » Blog Archive » SEC Proposed Exec Comp Disclosures - Actuarial Value of Pensions — January 31, 2006 @ 8:15 am

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