Senate Finance Committee Passes Exec Compensation Reforms

May 13, 2003 ( - The Senate Finance Committee has included provisions in its $441 billion tax bill to tax certain deferred compensation plans and deny deferral of gains from some stock options.

>The proposal would subject to tax certain nonqualified deferred compensation plans with assets located outside the US.   This is intended to apply to foreign trusts and arrangements that shield the funds from creditors’ claims in bankruptcies, according to a news release by Senator Charles Grassley (R-Iowa) the chairman of the committee.

>Other provisions involve tax treatment of gross income in a deferred compensation plan for corporate insiders and denial of deferral of certain stock option and restricted stock gains.

>The measures were included in a last-minute amendment to the Jobs and Growth Reconciliation Tax Act of 2003 approved late Thursday by the committee. In part, these reforms were driven by executive compensation abuses at Enron Corp., which was the subject of an investigative report by the Joint Committee on Taxation (JCT) (See  Grassley Calls For End to Executive Tax Shields ).

“As in the case of Enron, executives often use arrangements which allow deferral of income, but also provide security of future payment to the executive,” Grassley said   “The committee believes that many nonqualified deferred compensation arrangements have developed that allow improper deferral of income.”