September 30, 2005

Deferred Comp – Section 409A Proposed Regulations Issued

Yesterday, the Treasury Department and IRS issued proposed regulations on deferred compensation under Section 409A of the American Jobs Creation Act. Section 409A governs plans and arrangements that provide nonqualified deferred compensation to employees, directors or other service providers and the proposed regulations provide a framework for implementing those.

The proposed regulations (which are 238 pages) identify which plans and arrangements are covered under Section 409A, outline operational requirements for deferral elections and permissible timing for deferred compensation payments made under the rules. The rules also extend the deadline for documentary compliance with the new rules for one year, to December 31, 2006.

In his Compensation Blog, Mike Melbinger will be providing his analysis on the proposed regulations in the days to come. His initial thoughts on the regs are:

“One of the areas of most interest to many readers will be the discussion of SARs. Recall that SARs issued by private companies and SARs that could be settled in cash came in for harsh treatment under the initial guidance on 409A.

Here the newly released proposed regulations bring good news. The regulations treat stock appreciation rights similarly to stock options, regardless of whether the stock appreciation right is settled in cash and regardless of whether the stock appreciation right is based upon service recipient stock that is not readily tradable on an established securities market. However, because the IRS remains concerned that manipulation of stock valuations, and manipulation of the characteristics of the underlying stock, may lead to abuses with respect to stock options and stock appreciation rights (collectively referred to as stock rights), the regulations contain more detailed provisions with respect to the identification of service recipient stock that may be used to determine the amount payable under stock rights excluded from the application of section 409A, and the valuation of such stock.”

Another great place to learn more about the proposed regs is at the upcoming NASPP Conference in Chicago November 1 – 3.

SEC Not so Free with Information for FOIA Requests

This article by Bloomberg discusses a recent report by the Coalition of Journalists for Open Government that found the SEC turns down more FOIA requests for non-public information than almost every other government agency, including the CIA and the Pentagon. Of the 25 U.S. departments and agencies in the report, only the Small Business Administration and the National Archives turned down more requests.

According to the report, the SEC granted only 34% of the 3,830 FOIA petitions it processed during the 2004 fiscal year and almost 20% of those denials that were appealed were overturned.

And the SEC’s backlog of 8,635 requests (at its 2004 year-end) was bigger than all but four agencies surveyed. The public filed 9,325 requests with the SEC from October 2003 to October 2004. All but 690 of the 3,830 FOIA petitions the SEC ruled on that year were holdovers from fiscal 2003, so when the SEC closed the books on 2004, it still faced 8,635 pending requests.

Find out more about the SEC’s FOIA program in our “Confidential Treatment” Practice Area.