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Excess Benefit Plans, Part II

Article Abstract:

A study of three topics is presented: 1) supplemental executive retirement plans (SERP), 2) golden parachute arrangements, and 3) federal income estate and gift tax issues. A discussion of 'top hat' plans contends that, unlike excess benefit plans, they are subject to the Employee Retirement Income Security Act (ERISA) enforcement provisions but exempt from participation, vesting, funding and fiduciary requirements. Employers can select separate agreements or overall plans and there are many design and drafting elements to consider. Specific issues examined include: income tax and gift tax consequences of elections regarding non- qualified deferred compensation, estate tax consequences of elections and beneficiary designations, and tax planning. Specific change of control provisions or golden parachutes has not been challenged much in court. They usually offer added benefits and fringes but are criticized for failure to fully protect stockholder interests.

Taxation

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The Nature of the Promise to Pay in a Section 457 Plan

Article Abstract:

The analysis of Internal Revenue Code (IRC) Section 457 discusses qualified and non-qualified employee benefit plans. It contends that Section 457 has a split personality that engenders problems in qualification and administration. Relevant elements studied include: plan sponsor, participants' maximum deferrals, commencement of participation, distributions, and assets property of employer. Regarding the promise to pay concept analysis focuses on constructive receipt, timing of election to defer, irrevocable election, and economic benefit doctrine. An investment index is utilized to determine benefits payable to a participant or beneficiary in a Section 457 plan. Such a plan is expected to become more popular as knowledge of its advantages becomes widespread.

Laws, regulations and rules, Revenue

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Excess Benefit Plans, Part I

Article Abstract:

Employers are redivising tax benefit plans for executives in view of limits set by the Tax Equity and Fiscal Responsibility Act (TEFRA). Maximum benefits were cut by over one-third. This analysis contends that the excess benefit plan is a simple means of replacement for the sum executives lose due to the TEFRA limits. A separate plan document is required. If unfunded, an excess benefit plan is totally exempt from limits. It must be in line with reporting and disclosure rules, the fiduciary responsibility rules and Employee Retirement Income Security Act (ERISA) enforcement if it is funded. Other relevant topics include: drafting considerations, social security tax problems, and the concept of constructive receipt of income.

Analysis

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