Blogging Employee Benefits

August 13, 2006

Exec Comp Disclosures: Pension Table

Filed under: Executive Compensation, Pensions, SEC — Fuguerre @ 12:47 am

The actuarial present value of accumulated pension benefits and deferred compensation for each named executive officer must be disclosed in the new Pension Table prescribed by the SEC’s final regulation on executive compensation disclosure. [33-8732] See §229.402(h) and the associated discussion in Preamble Section II.C.5.a. Detailed disclosure is required separately for each qualified defined benefit plan and non-qualified deferred compensation plan (other than non-qualified defined contribution arrangements) under which a named executive officer benefits. [§229.402 Instructions to Item (h)(2) item 1]

Pension values should be determined as of the same pension plan measurement date used for the financial statements for the most recent fiscal year. Given FASB’s 7/29 decision (as previously discussed here) to delay until 2008 the effective date of the requirement to synchronize the pension measurement date with the financial statement date, employers that continue to use an early measurement date for their pensions under FAS 87 would be using that same early measurement date for the executive pension disclosures for several more years.

The measurement should assume that the executive will retire at the normal retirement age defined in the plan (or absent a normal retirement age under the plan, at the earliest time when a participant may retire under the plan without any benefit reduction due to age). Since the value of currently accumulated benefits based on current compensation is to be disclosed, no assumption of future compensation levels would be used, even for a pay-related benefit formula (although narrative text should sufficiently describe the benefit design). Otherwise, present values should be determined using the same actuarial assumptions used for financial reporting purposes, i.e., generally as under FAS 87 (except in the case of individual deferred compensation contracts). Narrative text should disclose the valuation method and all material assumptions used to quantify the present value. [§229.402 Instructions to Item (h)(2) item 2.] A “succinct narrative description” of any material factors necessary to understanding each plan covered within the Pension Table should describe material terms and conditions of benefits available under the plan, including amounts that could be paid immediately for any executive currently eligible for early retirement. [§229.402(h)(3)]

In addition to the present value of pension benefits, the pension table should also disclose the dollar amount of any pension payments actually made to each named executive during the most recent fiscal year [§229.402(h)(2)(v)], as well as the credited service for each executive under each plan [§229.402(h)(2)(iii)].

August 11, 2006

SEC Exec Comp Disclosures: Transition

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 7:56 pm

Give it another week or so before we lock in the initial key effective date here, which will be when this gets published in the Federal Register, but the SEC has posted its final regulations on executive compensation and related person disclosure on its website. [33-8732]

I’ll start my own reading here with the compliance dates for the new rules:

  • 60 days Federal Register publication, for triggering events occuring on or after – Forms 8-K.
  • 12/15/2006, for fiscal years ending on or after – Forms 10-K and 10-KSB.
  • 12/15/2006, for proxy or information statements filed on or after, required to include relevant disclosures for fiscal years ending on or after – Proxy and information statements covering registrants other than registered investment companies.
  • 12/15/2006, for registration statements filed on or after, required to include relevant disclosures for fiscal years ending on or after – Securities Act statements covering registrants other than registered investment companies; and Exchange Act registration statements.
  • 12/15/2006, for initial registration statements and post-effective amendments filed on or after – Initial statements and post-effective amendments filed on Forms N-1A, N-2, and N-3 (excluding those filed by business development companies).
  • 12/15/2006, for proxy or information statements filed on or after – Proxy and information statements covering registered investment companies.

Disclosures under the new rules are not required to restate compensation or related party disclosures for prior fiscal years. For example, only the most recent fiscal year need be displayed in the revised Summary Compensation Table.

I’ll bite into more substance on this through the weekend, if I can distract myself from PPA long enough to do it any justice.

March 3, 2006

Clarification of SOX 402 Loan Ban Sought

Filed under: Loans, SEC — Fuguerre @ 8:23 am

Recommendation IV.S.10: Clarify the Sarbanes-Oxley Act Section 402 loan prohibition.

Included in a more extensive report I’ll come back around to this weekend, the SEC’s Advisory Committee of Smaller Public Companies advises that the agency’s Division of Corporation Finance should provide interpretive guidance on §13(k) of the Exchange Act, added by Sarbanes-Oxley Act §402, which prohibits public companies from extending personal loans to directors or executive officers. The Advisory Committee specifically seeks clarification regarding cashless exercise of stock options, indemnity advances, relocation accommodations for new hires, and split dollar insurance policies. If approved by independent directors, the Advisory Committee believes that those transactions are not likely to lead to the abuses that led to SOX 402. [SEC File No. 265-23]

Add participant loans from 401(k) accounts and other qualified retirement plans to that list (but in those cases, subject only to terms of the plan, sans approval of the individual transactions by independent directors).

March 1, 2006

SEC Proposes Changes to Market-Timing Intermediary Rules

Filed under: Investment, SEC — Fuguerre @ 11:00 pm

The Securities Exchange Commission has proposed amendments to rule 22c-2 under the Investment Company Act relating to mutual fund redemption fees. [17 CFR 270, File No. S7-06-06] The proposed change is a technical rule modifying identification of intermediaries with whom information-sharing agreements must be established and clarifying operation of the rule governing those agreements.

Rule 22c-2 was originally adopted in March 2005 to address short-term trading abuses. [70 FR 13327] The rule requires a fund’s board to consider imposing a redemption fee of as much as 2 percent on the value of shares redeemed within 7 days. Funds are also required to establish agreements with intermediaries, such as broker-dealers, enabling identification of investors whose trading violates short-term trading restrictions. Compliance with rule 22c-2 is required by October 16, 2006. (See Benefitsblog for further discussion.)

The SEC’s proposed amendment addresses practical problems that had been raised with the rule on information-sharing agreements with intermediaries –

  • Small Intermediaries – If a fund treats an entity as an individual for purposes of control of market-timing, then the entity would not be treated as an intermediary for purposes of the rule on information-sharing agreements. For example, if a fund applies a redemption fee or exchange limits to the transactions of a small retirement plan rather than separately to the transactions made by each plan participant, then the plan would not be treated as an intermediary, and the fund would not be required to establish an agreement with the plan.
  • Intermediary Chains – Frequently an intermediary, such as a brokerage firm, may hold mutual fund shares on behalf of other intermediaries, such as pension plans. The SEC’s proposed amendment to the rule would require the fund to establish an agreement only with “first-tier intermediaries,” those that directly submit orders to purchase or redeem fund shares.
  • Failure to Obtain Agreement – If a fund has obtained agreements with some of its intermediaries, but has been unable to obtain an agreement with one or more other intermediaries, then trading prohibitions would be required only with respect to any intermediary lacking an agreement, without adversely affecting those with agreements.

The proposed rule does not delay the original 10/16/06 compliance date. Although the SEC seeks further comment on other market-timing issues, the current proposal does not address uniform standards nor numerous additional matters of concern to retirement plan sponsors. Comments on the proposed rule should be submitted to the SEC by 4/10/2006.

February 16, 2006

SEC/PCAOB Roundtable on Sarbox 404

Filed under: Accounting, SEC — Fuguerre @ 8:03 pm

“I am very much open to suggestions to make the internal control assessment process more efficient, including modifications of the PCAOB’s auditing standard and other actions the Board could undertake,” said PCAOB Acting Chairman Bill Gradison. “This is the PCAOB’s highest priority policy issue.”

The Securities and Exchange Commission and the Public Company Accounting Oversight Board will sponsor a roundtable discussion on May 10, focusing on experience with the requirements relating to companies’ internal control over financial reporting under §404 of the Sarbanes-Oxley Act. [Press Release 2006-22]

Feedback from companies, auditors, investors, and others relating to §404 compliance is solicited. Comments submitted by May 1 will become part of the public record of the roundtable.

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.

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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