ERIC memorandum template


<nobr>Oct 6, 2004</nobr>

Update on NQDC

The House and Senate Conferees to the corporate/international tax bill (H.R.4520) are continuing to meet today to try to reach agreement on a final bill. Nonqualified deferred compensation provisions have not yet been brought up for amendment. The Conference Chairman, Bill Thomas (R-CA) wants to finish the conference sometime tomorrow.

The Chairman's "mark," which was unveiled Monday evening and is the basis for the current deliberations, made some significant revisions to the nonqualified deferred compensation provisions of earlier bills but also leaves key issues unresolved. Specifically:

(1) The penalties for noncompliance would be limited to affected particpants. Penalties include interest charges and a 20% additional tax on any compensation required to be included in compenstion as a result of noncompliance.

(2) Neither the restrictions on investment options that were in the Senate bill nor the alternative approach in the Baucus amendment are included in the Chairman's mark.

(3) The effective date generally applies to amounts deferred after 12/31/2004, or to amounts prior to that date if a plan is materially modified after October 3, 2004, other than to conform to the new rules. Treasury is to provide for an "unwinding" option.

(4) Sec. 672 of the Senate bill, regarding the deferral of stock option gains, is not included in the Chairman's mark.

(5) The chairman's mark provides that elections for performance-based compensation based on services performed over a period of at least 12 months may be made no later than 6 months before the end of the period.


(a) No exclusion for SARs is included in the Chairman's mark. (An exclusion for cash-settled SARs is included in the Baucus amendment; and an exclusion for market value SARs is included in the Sam Johnson amendment).

(b) The chairman's mark fails to provide any exception from the election-timing rules for supplemental retirement plans that provide benefits under a formula that is the same as the employer's qualified plan and that pays benefits at the same time and in the same form as under the qualified plan. (Sam Johnson's amendment addresses this issue.)


Janice Gregory, Senior Vice President

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