Blogging Employee Benefits

January 31, 2006

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.

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