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Practice Management > Compensation and Fees

AALU Has Concerns Over Senate Bills

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A new deferred compensation proposal would maintain the current industry-supported moratorium on Treasury Department guidance on nonqualified deferred compensation, but still raises concerns, says Bob Plybon, president of the Association for Advanced Life Underwriting.

The proposal–an amendment to S. 1637, an international tax bill, was introduced by Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Ranking Committee Democrat Max Baucus, D-Mont.–is similar to an existing proposal but with one key difference, Plybon says.

The new proposal, he explains, does not appear to include repeal of the moratorium on nonqualified deferred compensation guidance under Section 132 of the Revenue Act of 1978.

By contrast, the moratorium would be repealed under the existing proposal, which is part of the National Employee Savings Trust Equity Guarantee (NESTEG) Act (bill number not yet available).

If the moratorium is repealed, Plybon says, the Treasury Department would have broad discretion to begin issuing guidance that could significantly change the current rules applicable to NQDC.

“AALU is opposed to that repeal and has made that opposition known to the Congress,” he says.

But while the moratorium would remain in place in the new proposal, Plybon says AALU still has concerns over some provisions both in NESTEG and S. 1637.

Both Senate bills, Plybon says, would impose substantial restrictions on the investments that could be offered under NQDC plans.

Specifically, he says, the available options would have to be “comparable” to those available to participants of the employers qualified plan that has the fewest investment options.

In addition, he says, the Senate bills have more restrictions on distributions following a change in control of a business, greater tax penalties and increased restrictions on deferrals.

The Senate proposals would apply to amounts deferred in taxable years beginning after Dec. 31, 2004.

Plybon says AALU continues to support the deferred compensation provisions contained in H.R. 2896, the American Jobs Creation Act, which was approved last October by the House Ways and Means Committee.

These provisions, he says, would limit the times at which distributions from NQDC plans are permitted, require deferral elections to be made before the year in which the services are performed, and prohibit provisions securing payment of deferred compensation upon a change in the employers financial health.

In addition, Plybon notes, the proposal would limit the use of foreign trusts.

He adds that it is unclear when final action on deferred compensation will take place. AALU, Plybon says, wants enactment to occur early enough in 2004 to permit orderly amendment of existing plans.

Reproduced from National Underwriter Edition, April 9, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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