June 22, 2004

Proposed Non-Qualified Deferred Compensation Legislation

A pretty far-reaching pair of Congressional bills recently passed the House and Senate: H.R. 4520, the American Jobs Creation Act of 2004 and S. 1637, the Jumpstart Our Business Strength (JOBS) Act of 2004. As these two bills go to conference, they are substantially similar and would impose significant penalties on any arrangements that did not meet their stringent requirements.

Under the JOBS Act, plans permitting distributions of deferred compensation triggered by, and occurring during the first year after, a change of control (to be defined in future regulations) to Section 16 officers would be subject to penalties, including a 20% excise tax imposed on the officer (which would be in addition to any excise tax imposed by Section 4999 of the Internal Revenue Code). In addition, that distribution would be non-deductible to the company. This is one piece of legislation to watch.