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AALU Executive Reacts To Senate Deferred Comp Proposal

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The Association for Advanced Life Underwriting is lobbying against the non-qualified deferred compensation provisions that were added Wednesday to the Senate Finance Committee’s version of the minimum wage increase bill.

The AALU, Falls Church, Va., “is concerned about these provisions and is communicating its concern to Congress,” says Tom Korb, vice president for public and policy affairs. “We have also helped call attention to these issues among a variety of pension-sensitive stakeholders in Washington.

Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, has opposed mixing tax provisions with efforts to increase the minimum wage, but members of the Senate Finance Committee have been trying to add tax breaks to their minimum wage bill

Senate panel members added the non-qualified deferred comp provisions and other provisions in an effort to offset the new tax breaks, observers say.

Senate Finance Committee members approved their version of the minimum wage bill, which at press time did not yet have a bill number, by a voice vote, after little debate.

One of the new non-qualified deferred comp provisions would restrict the amount of compensation that executives can defer each year, Korb says.

“While a few individuals would be permitted to defer as much as $1 million, the new rules would limit deferrals to far less than that for the vast bulk of individuals,” Korb says.

The provision capping deferred compensation at $1 million is “administratively cumbersome,” and technical violations could result in the immediate taxation of amounts that were legitimately deferred in past years, Korb says.

“For public companies, in some circumstances, a second proposal would have the effect of limiting corporate deductions when compensation is paid out to executives after they retire,” Korb says.

Korb predicts that both deferred comp provisions would have a “significant” retroactive impact.

The proposed deferred comp limit provisions would complicate the deferred comp changes made in 2004, when Congress added Internal Revenue Code Section 409A.

The Internal Revenue Service and the Treasury Department have been working since Section 409A was created to develop “hundreds of pages” of guidance to fully implement the new rules, Korb says.

Simply dealing with the new regulations “has been a daunting task,” Korb says.

AALU believes “that the Section 409A rules enacted in 2004 should be given a chance to work without adding new restrictions to deferred compensation,” Korb says.

“We are not aware of any reason to add new limitations,” Korb says. “Businesses and employees sorely need a measure of stability to do proper planning.”