<nobr>Dec 10, 2004</nobr>

Congressional Letters on SARs & NQDC Regs

CONGRESSIONAL LETTERS MAY HELP CREAT EXEMPTION FOR SOME SARs

ERIC and ERIC-member lobbying has helped to move forward a possible exemption for fair market value stock appreciation rights (SARs) from the new law regulating nonqualified deferred compensation plans. Two letters from key members of Congress have been sent to Secretary Snow this week asking, among other things, that the upcoming regulations on NQDC address stock appreciation rights (SARs).

ERIC had discussed the need for a SARs exemption with Senate Finance Committee and Treasury Department staff and met in November with House Ways and Means staff, with the White House and with several Congressional offices. ERIC urged the Members of Congress to take action to ensure that the NQDC regulations provide an exemption for fair market value SARs. The American Jobs Creation Act (P.L. 108-357) provides a statutory exemption from the new NQDC rules for fair market value stock options -- but contained only a sentence in the Statement of Managers accompanying the conference report on the bill regarding Treasury authority to deal with SARs. Treasury has been reluctant to provide any form of exemption for SARs without a statutory exemption parallel to that for stock options.

The two letters -- 1. one from the chairmen of the Senate Finance and House Ways and Means committees as well as the ranking Democrat on the Finance Committee and 2. one signed by four members of the Senate Finance Committee that were involved with the legislation as it passed -- are designed to provide Treasury assurance that it should go ahead to provide special rules for SARs.

Treasury is to issue its first round of guidance by December 21. Key Treasury staff have stated that they would like to get the guidance out as early as December 15.

It is not clear, however, how SARs will be treated in this early guidance. While it is not difficult to draft a regulation that would exempt fair market value SARs issued by publicly traded companies, Treasury staff has been uncertain of what approach to use regarding SARs issued by privately held companies, and has expressed concerns about opening up a "loophole" in the new law. If Treasury acts, as we now have some reason to hope it will, the initial regulations may resolve those issues -- or may delay them until a later set of guidance.

The two letters from Congress are below.

For questions or additional information, contact:
Janice Gregory, Senior Vice President (jgregory@eric.org)
Vanessa Scott, Legislative Counsel (lscott@eric.org)
(202)789-1400

Text Files:

Letter #1

Letter #2

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