<nobr>Jan 23, 2007</nobr>

Major Employers Express “Strong Opposition” To Deferred Compensation Amendment

FOR IMMEDIATE RELEASE

Washington, D.C.—The ERISA Industry Committee, a trade association comprised of the nation’s major employers, last night urged the Senate to reject an amendment to the Senate minimum wage legislation that was added without debate or hearings. The amendment would limit the ability of tens thousands of employees to defer part of their compensation as a retirement planning tool.

“This amendment reaches far below senior executives into the depths of middle management to disrupt retirement planning for tens of thousands of employees around the country,” said ERIC President Mark Ugoretz. “The deferral cap for the vast majority of employees will be far less than the million dollar headline. The special deferred compensation plans are made necessary by the failure of Congress to keep the limits on qualified plans limits—such as 401(k) and traditional pension plans—up to date with inflation since federal pension law was passed in 1974.”

In a letter sent to the Senate, Ugoretz urged Senators to reject the amendment and highlighted several concerns over the operation of the cap. The letter pointed out that the deferral limit is set at the individual employee’s five-year average salary—usually far less than $1 million. In addition, the amendment treats interest and earnings credits on post-2006 deferrals as additional deferred compensation further reducing the amount that an employee can choose to defer. The result could be a complete inability for employees to defer any amount if their deferred compensation plan will credit them with interest and earnings in excess of the limit for that year.

The amendment’s design would “penalize employees for reasons beyond the employee’s control,” noted Ugoretz. “For example, where an employee is credited with units of employer stock and the employer’s stock price greatly appreciates in a single year” the employee would become subject to penalties.

ERIC’s letter also noted several other pernicious effects that could result from the amendment. Employees with the longest-tenure would often be subjected to the lowest deferral limits because they will have accumulated the largest sum of deferrals resulting in greater interest and earnings due in any one year. In addition, the amendment would discourage phased retirement, because the reduced salaries earned in those years would limit an employee’s ability to defer salary and increase the risk of violating the limit simply through interest and earnings credits.

In the letter, ERIC objected to Congress’ attempt to change the rules for deferred compensation when the Treasury Department is only now issuing the guidance needed to implement the major changes passed by Congress in 2004.

According to Ugoretz, “[t]he existing rules should not be changed or supplanted before the existing rules have been . . . given a chance to work.”

For More Information
S. Michael Chittenden
Director, Communications
The ERISA Industry Committee
1400 L Street, N.W., Suite 350
Washington, DC 20005-3509
(202) 789-1400 Fax (202) 789-1120

Text Files:

ERIC Letter

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