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House Minimum Wage Bill Has No Deferred Comp Provisions

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Controversial provisions narrowing non-qualified deferred compensation packages that were included in Senate minimum wage legislation are unlikely to become law soon as a result of action the House was expected to take after press time.

However, industry lobbyists and lawyers cautioned that the provisions are expected to re-emerge later this year in a more focused form in both the House and the Senate.

The House was scheduled to act Feb. 16, depending on other business, on tax legislation reported out Feb. 12 by the House Ways and Means Committee that did not include the controversial provisions.

That tax package is expected to be ultimately twinned with legislation passed by the House in January that called for an increase in the minimum wage in 3 steps over a 25-month period.

David Stertzer, CEO of the Association for Advanced Life Underwriting, said he expects the House/Senate conference to resolve the conflicting bills to take place in late February or early March.

The House bill would extend business tax credits and increase the amount of capital spending that a business can write off. It also would give restaurants a break on how to calculate deductions for Social Security taxes paid on tips.

According to congressional estimates, the House tax cuts would cost the Treasury $1.3 billion in lost revenue over 10 years, while those in the Senate bill would cost $8.3 billion over 10 years.

Stertzer said a broad coalition of organizations–including the U.S. Chamber of Commerce, which strongly opposes the deferred comp proposal–is working to ensure these provisions are not included in the minimum wage legislation.

“AALU is continuing its vigorous Capitol Hill outreach urging that final legislation not include a Senate proposal that would have a very harmful effect on the ability of hundreds of thousands of employees who use deferred compensation to adequately save for retirement,” he said.

“Congress has already enacted extensive rules that address any concern about deferred compensation, and businesses are still awaiting hundreds of pages of guidance from the IRS,” Stertzer noted.

Jack Dolan, American Council of Life Insurers spokesman, said earlier, “We’re not anticipating the Senate’s provisions gaining traction in the House.”

At the same time, it is the consensus of lobbyists for law firms, industry trade groups and insurance companies that a much narrower bill targeting non-qualified deferred compensation plans will be considered in both the House and the Senate later this year.

As stated in a recent note to clients by law firm Williams and Jensen, “Even if these provisions are not included in the final minimum wage bill, we believe they will be reformulated and brought up again this year.”

“[Senate Finance Committee] Chairman Max Baucus, D-Mont., has stiffened in his support of the provisions, and they won’t go away easily,” the note said.

Sen. Charles Grassley, R-Iowa, ranking minority member of the Senate Finance Committee, said in 2 recent appearances on business news shows that the deferred comp cutback package passed by the panel Jan. 17 is too broad, and it needs reworking to ensure that it targets only top officials with annual deferred comp packages of $1 million or more.

Specifically, the provisions capping deferred compensation at $1 million in the Senate bill would:

o Amend Internal Revenue Code section 409A to impose a dollar cap on the annual accrual of nonqualified deferred compensation that is the lesser of $1 million or the individual’s average annual compensation determined over 5 years.

Failure to satisfy the cap would trigger ordinary income tax plus the 20-percent additional tax under section 409A.

o Amend the section 162(m) (“million dollar deduction” limit) to treat any former employees (and their beneficiaries) as continuing to be covered by the section 162(m) limits in the future, in other words, after termination of employment.