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CCH® PENSION AND BENEFITS — 2/6/07

ERIC states opposition to Senate's proposed cap on deferred compensation

The ERISA Industry Committee (ERIC) is voicing its "strong opposition" to a proposed $1 million annual cap on nonqualified deferred compensation, contained in legislation approved by the Senate Finance Committee on January 17, 2007 (see CCH Pension Plan Guide Newsletter, Report No. 1668, January 29, 2007). The proposed limit on nonqualified plan deferrals is a provision of the Small Business and Work Opportunity Bill of 2007 (S. 349), a package of small business tax incentives that is currently under debate in the Senate as part of legislation to raise the minimum wage.

In a letter to the Senate, ERIC President Mark J. Ugoretz charged that the proposed limit would "undermine, if not destroy, traditional, non-abusive retirement income, severance, and other deferred compensation arrangements covering thousands of employees." Since the proposed cap on deferred compensation would be the lesser of $1 million or the employee's average compensation over the past 5 years, the cap would apply to many employees beyond senior officers and executives, Ugoretz said. The amendments would not merely apply to amounts employees voluntarily elected to defer, Ugoretz maintained, they would also apply to the aggregate of all deferred benefits an employee is entitled to receive under a wide variety of plans treated as deferred compensation plans for tax purposes, including benefit restoration plans, severance plans, early retirement window plans, and incentive plans.

Senate urged to allow existing rules to work

Ugoretz defended the current deferred compensation plans as necessary due to Congress' failure to keep the limits on qualified plans up to date with inflation. He noted that Congress only recently adopted an entirely new set of rules for deferred compensation, and regulations under Code Sec. 409A are forthcoming from the Treasury. "Existing rules should not be changed or supplemented before the existing rules have been fully implemented and given a chance to work," Ugoretz urged.

House and Senate differ

On January 30, 2007, the Senate approved a motion to file cloture on an amendment sponsored by Senate Finance Committee Chairman Max Baucus (DMT) that would couple a minimum wage increase with the package of small business tax incentives and revenue raisers, including the nonqualified deferred compensation cap, that were approved by the Senate Finance Committee. At press time, the Senate was preparing to debate the measure and consider amendments from the floor.

How the House will respond to passage of the Senate bill remains in doubt as Democratic leaders in that chamber remain committed to passage of a clean minimum wage bill. Sen. Baucus remained confident that Democratic leadership will reach an accord. "Once the Senate approves this minimum wage bill, I'm confident we'll work out an agreement between the Senate and the House to move it into law," said Baucus in a statement. White House officials are optimistic that a final bill will include small business provisions.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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