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 27, 2006

Pension Survivor Annuity Only for Spouse at Retirement

Filed under: Executive Compensation, Litigation — Fuguerre @ 2:57 pm

ERISA's interest in protecting surviving spouses does not extend so far as to require that retirement plans ensure continued benefit payments to anyone whom a plan participant might marry after his retirement and after the death of his spouse.

Survivors benefits under a top hat retirement plan's joint and survivor annuity are not payable to a second spouse married after the death of the spouse to whom the employee had been married when benefit payments had commenced, according to an 11th Circuit decision affirming the district court's summary judgment for the employer. [Holloman v. Mail-Well Corp., No. 05-10850]

Upon retirement in 1991, the individual elected to receive reduced benefits under a joint and survivor annuity option from his employer's top hat plan maintained for its key executives. The plan in force at that time granted his employer authority to amend plan terms, as long as benefits were not reduced. In 1994, his spouse died, and he apparently continued receiving reduced annuity payments consistent with his joint and survivor election. In 1995 he remarried. After his former employer was acquired in 2000, the acquiring company decided to accelerate payments under the plan, basing the individual's ensuing lump sum payment on actuarial assumptions recommended by an outside consulting firm and a single life annuity based only on the individual's life expectancy, without taking into account his current spouse. After the individual's lawsuit was moved to federal court, summary judgment was granted in favor of the employer.

Although there remains uncertainty about the proper standard of review to apply to an administrator's benefit decisions under a top-hat plan, the court found it unnecessary to decide that issue here, observing that in this case the same conclusion would be reached under either a deferential or de novo standard of review. Since the plan included explicit language reserving the right to accelerate benefit payment, and since the plan trustee had not erred in concluding that the acquiring company's board inherited powers that had been reserved for the acquired employer's board, the court concluded that the decision to distribute the lump sum value of benefits did not violate terms of the plan. Since the individual provided no affirmative evidence to show that the lump sum payment was not fully equivalent to the value of the future benefits, the court rejected claims that the acceleration had violated plan terms against benefit reduction, noting that the individual's argument was "essentially saying that the value of any lump-sum payment had to exceed the value of the stream of future payments that it was meant to replace."

Turning to the survivor's benefit issue, the appellate court first distinguished Supreme Court precedent in Boggs v. Boggs (1997), finding that decision inapplicable to top hat plans, which are excluded from ERISA's participation and vesting rules. Moreover, even if qualified joint and survivor rules were to apply, survivor annuity benefits are only available to the spouse married to the individual at benefit commencement, not "to anyone whom a plan participant might marry after his retirement and after the death of his spouse." The court found plan terms defining a participant's surviving spouse as beneficiary irrelevant to the joint and survivor annuity distribution option.

The court further rejected the individual's claim of fiduciary violations, observing that "top hat plans are not subject to ERISA's fiduciary requirements." The appellate court also ruled that the district court had not abused its discretion in denial of motions regarding discovery. Finally, the individual's attorney's appeal to a sanctions order was denied, with the court instructing, "It is by now abundantly clear that a timely and properly filed notice of appeal is a mandatory prerequisite to appellate jurisdiction."

March 21, 2006

Secular Trust Dead Horse Buried

Filed under: Executive Compensation, Litigation — Fuguerre @ 7:00 pm

Under the doctrine of res judicata, [plaintiffs] are not entitled to seek repeatedly the pension funds on marginally different theories.

Finding the case moot, the 7th Circuit has affirmed dismissal of claims by two former executives against the Federal Deposit Insurance Corporation, seeking nonqualified pension funds promised under employment contracts with a failed savings institution. Furthermore, “to encourage finality” in litigation that has stretched out over 15 years, the appellate court alternatively affirmed district court judgment that the executives’ claims are barred by res judicata. [Mayer and Gravee v. FDIC, No. 05-1701]

Upon the 1982 merger of their savings and loan institution with three troubled institutions, the two executives relinquished their pension plans established at the predecessor bank, with the understanding that a new plan could be established at the merged institution upon attainment of financial stability. A rabbi trust was established in 1985, which two years later was amended to create a secular trust to provide retirement benefits for the executives. After the institution was declared insolvent and the executives’ employment terminated in 1990, the government’s trustee for the failed institution ordered the secular trust against payment of the pensions. The executives filed suit, only to be denied in 1994 by a district court ruling that found the secular trust to have violated 12 C.F.R. §563.39 rules relating to conditions on savings association employment contracts. After a long trail of subsequent litigation over the claims, the current phase finds the executives alleging that invalidation of the secular trust resurrects the rabbi trust, from which they continue to seek payment.

Since FDIC corporate liability is limited to assets of the failed institution’s receivership, which has long been exhausted, the court sees no possible relief to order for the executives against the agency, therefore dismisses for lack of a justiciable case or controversy. Even if the court were to order relief, the court finds the claims barred by the doctrine of res judicata, the principle of claim preclusion of which the court considers this case “paradigm” as all parties to the current litigation have already seen final judgment on the merits in not one, but two previous lawsuits.

February 8, 2006

SEC Exec Comp Disclosure Proposal in Federal Register

Filed under: Executive Compensation, Regulations — Fuguerre @ 7:26 am

The SEC‘s proposed regulations on executive compensation disclosures and related party disclosures, originally posted early Friday January 27 on the the agency’s website (File No. S7-03-06), have made it to publication in the Federal Register. [71 FR 6541] That puts April 10 on my calendar as the deadline for comment, which can be submitted electronically at the SEC website. Previous BeneBlog posts on some of the details, to be followed in coming days by more –

  • Named executive officers
  • Pensions and other post-employement compensation
  • Actuarial value of pensions
  • Transitions
  • February 1, 2006

    FASB Moves To Finalize Rule on Certain Stock Options

    Filed under: Accounting, Executive Compensation — Fuguerre @ 1:54 pm

    In this morning’s Board meeting, the Financial Accounting Standards Board moved to finalize FSP FAS-123r-d, a proposed FASB Staff Position regarding the proper accounting classification under SFAS 123R for a share-based payment arrangement that allows a cash settlement upon change in control. [FASB Board Meeting Handout, 2/1/06, pp 6-7] Background: See BeneBlog 1/15/06.

    • FASB decided against restricting the guidance in the FSP only to specific contingent events. Discussion made it clear that the Board expects a “continuing probability assessment” for each relevant event.
    • The Board decided to retain the proposed probability approach, versus a grandfathering approach suggested by a comment made on the proposed rule.
    • The Board agreed that non-employee awards should not be included within the scope of this FSP, but seemed puzzled as to why the plain language of the proposed FSP had not already made that distinction sufficiently clear.

    The final FSP should be published shortly.

    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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