You are here: FPA Net > FPA Journal > Past Issues & Articles > 2006 Issues > 2006 September Issue -
Article 1
Return to normal view
Focus
Changes in Executive Compensation Packages Spell
Opportunity for Advisors
by Ed McCarthy, CFP®
Executive compensation and benefits continue to draw scrutiny. Salaries for top executives are increasing
to larger multiples of average employees' pay and incidents of backdating stock options are in the
headlines. Planners who advise executives acknowledge the negative publicity but report that their focus
continues to be on the financial impact of changes in tax regulations and compensation packages'
structure. Theses changes, several of which are creating new business opportunities for advisors, range
from reduced flexibility in deferred-compensation arrangements to the growing popularity of defined-
benefit plans among small-business owners.
Reduced Flexibility
The American Jobs Creation Act, which was signed into law in October 2004, imposed new restrictions on
deferred compensation arrangements by adding Section 409A to the Internal Revenue Code. According to
Pam Branshaw—partner in charge of employee benefits practice with CPA and consulting firm Wipfli LLP
in Madison, Wisconsin—before Section 409A, a major concern with nonqualified plans was the concept of
constructive receipt, the timing of which determined taxability to the executive. Court cases and rulings by
the Internal Revenue Service focused on perceived abuse when executives were given control over timing
of receipt. The act eliminated that control; consequently, many businesses are revising their nonqualified
deferral plans.
"We are reviewing the agreements our clients have with their key employees," Branshaw says. "For small
businesses, it comes down to the elections an employee makes at the beginning of the agreement as to
how much compensation will be deferred and when they will receive the income. Those agreements must
now spell out all those details and take the contro