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Unless otherwise specified by the Committee in accordance with Code Section A, Specified Employee means an Employee who, at any time during the month period ending on the Specified Employee Identification Date was a Corporate Vice President, Region or Market President or above of the Company or any Affiliate, provided any stock of the Company or an Affiliate is actively traded on an established securities market or otherwise.
We are not told to which groups of individuals the different groups of things are related in this way. The tribes of the Bellinger River are each divided into two moieties; and, according to Palmer, this division applies equally to nature. Unless otherwise specified by the Committee in accordance with Code Section A, Specified Employee means an Employee who, at any time during the month period ending on the Specified Employee Identification Date was a Corporate or Region Vice President, Region or Market President or above of the Company or any Affiliate, provided any stock of the Company or an Affiliate is actively traded on an established securities market or otherwise.
In the event such Retirement Income is payable in the form of monthly installments pursuant to a valid payment election made by such Section A Specified Employee in accordance with paragraph b of this Section 7. The withheld payments will be paid to the Section A Specified Employee in a single lump sum payment on the Delayed Payment Date, with interest for the period of delay, compounded monthly, equal to the interest rate used under the U.
Retirement Plan to determined lump sum equivalencies. We recommend to our publicly held clients that, for the sake of clarity and uniform application to all of their plans, they establish a written "Specified Employee Policy.
In general, a "specified employee" is any employee of a public company as defined above who satisfies any one of following conditions:. The final regulations define "compensation" for the purpose of identifying specified employees by reference to the definition for compensation contained in Treasury Regulation Section 1. However, employers are permitted to use any alternative definition of compensation permitted under Code Section and its regulations, including any safe harbors or special timing rules, as long as that definition is used consistently across all deferred compensation plans for the purpose of identifying specified employees.
For purposes of identifying specified employees, we believe that the following alternative definitions of "compensation" can be used:. Each of the core definitions of compensation is slightly different. Some companies may find the simplicity of the W-2 Box 1 definition attractive. However, W-2 Box 1 wages, unlike the default definition of compensation, includes income due to nonqualified stock option exercise or when restricted stock becomes vested. This can create dramatic changes from year to year in compensation levels and which officers rank most highly in terms of compensation.
For U. This issue is discussed more broadly under "Specified Employees in Context of Organization with Foreign Affiliates" below. The final regulations require companies to identify a list of specified employees that will remain in effect for a month period. If an employee separates from service during this month period, the employer then refers to this list to determine whether the employee is a specified employee and thus subject to the six-month delayed payment rule.
First, the employer must select a "specified employee identification date. The specified employee effective date generally occurs approximately three months after the specified employee identification date.
For the 12 months beginning with the effective date, all employees who were identified on the "identification date" will be deemed specified employees. Default Identification Date. The "default" identification date under the rules is Dec. The rules allow an employer to designate a different identification date, which the employer must specifically elect. Default Effective Date. The "default" effective date is the first day of the fourth month following the identification date.
Therefore, if the identification date is Dec. The rules allow an employer specifically to elect a different effective date, but the effective date cannot be later than the first day of the fourth month following the identification date.
As discussed above, an employee may be a specified employee because he or she is an officer and has compensation greater than the applicable threshold. However, whether such an officer is a specified employee depends upon the following factors:. If a company is spun off from a public company and the spun-off company, after the spin-off, is a public company, the specified employees continue to have that status until the next specified employee effective date.
The identification date and effective date in effect pre-spin-off continue for both the original company and the spun-off company until changed.
Merger Of Two Public Companies. For the period from the date of the transaction to the next specified employee effective date of the surviving or acquiring company, the two specified employee lists are combined, and the top 50 officers, ranked by compensation, on the combined list, plus any 1 percent and 5 percent owners who are not also one of the top 50 officers, will be treated as specified employees during that period.
The surviving employer's identification and effective dates will be the applicable dates for the combined entity. When the new specified employee effective date occurs, the list is revised based on the combined entity. Alternatively, the surviving company may elect any other reasonable method for complying with the six-month delayed payment rule, so long as it elects to do so no later than 90 days after the transaction and applies that method prospectively from the date of the transaction.
For the period from the date of the transaction to the next specified employee effective date of the surviving or acquiring company, the specified employees of the public company will continue to be specified employees until the next specified employee effective date. No employees of the formerly private company will be specified employees until the next specified employee effective date.
A multinational corporation having employees in foreign countries as well as in the United States has some ability to determine whether its non-U. It may do so by electing a definition of compensation that will result in either more or fewer nonresident aliens depending upon the definition of compensation elected meeting the conditions for specified employee status i.
As indicated above, the rules provide a default definition of compensation for determining specified employee status.
But the rules also allow a company to elect any definition of compensation available under Code Section c.
The default definition of compensation would include as compensation any income that would normally be excludible from an employee's gross income due to the location of the employer or the services provided being outside the United States. However, an alternative definition of compensation under Code Section c would permit the employer to exclude such compensation from the definition of compensation for determining specified employee status, if the employer so elected.
Depending upon the size and compensation levels of the nonresident alien employee population relative to U. For example, if a company ranks its officers by compensation, and includes in compensation income earned outside the United States by its nonresident aliens, the result may be the inclusion of a number of officers outside the United States in the list of specified employees.
If such income is excluded from the definition of compensation, however, it is probable that no officers working outside the United States have compensation high enough to place them within the top 50 officers.
Therefore, a publicly held company with operations outside the United States should carefully consider the impact that its choice of compensation definition will have on the composition of its list of specified employees. Although it may be attractive to companies to attempt to restrict the number of U.
These burdens include identifying which foreign employees come within the definition of "officer" under the regulations, gathering compensation information about those employees, attempting to fit foreign compensation information within the U. An employer is permitted to adopt any other method of satisfying the six-month delayed payment rule, provided that:.
Some employers may decide to adopt an alternative method—even one where more employees will be treated as specified employees, and thus subject to the six-month payment delay—to ease administrative burdens.
For instance, an employer may decide to treat all employees as specified employees to avoid the possible underinclusion of specified employees. Another may determine that all employees in certain pay grades and above will be deemed specified employees. This approach is permitted under the rules, as long as it will capture all specified employees and the number of specified employees does not exceed A company that chooses to make one or more of the elections permitted by the regulations with respect to specified employee identification should be mindful that those elections are effective only as of the date that all necessary corporate action has been taken to make the elections binding for purposes of all affected nonqualified deferred compensation plans in which the service providers who would become specified employees, as a result of such election s , participate.
These elections would relate to any of the following:. Fair market value is not specifically defined in Section A of the Code or the associated regulations.
This is not without potential confusion, however. Shares issued pursuant to a stock option plan may not have similar put rights attached, and therefore may warrant a larger marketability discount. In such cases, a company that has an annual ESOP appraisal may not have an appropriate indication of fair market value for purposes of Section A.
In addition to independent appraisals, formula prices may, under certain circumstances, be presumed to represent fair market value. Specifically, the formula cannot be unique to the subject stock option or SAR, but must be used for all transactions in which the issuing company buys or sells stock. For purposes of Section A compliance, start-ups are defined as companies that have been in business for less than ten years, do not have publicly traded equity securities, and for which no change of control event or public offering is reasonably anticipated to occur in the next twelve months.
This presumption, while presented as a separate alternative, strikes us a substantively and practically similar to the independent appraisal presumption described previously.
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