Final Section 4960 Executive Compensation Excise Tax Regulations: Significant Changes for Tax-Exempt Organizations

Grandfathering, Covered Employees, Timing Rules For Renumeration, Related Group 50 Percent Test, Parachutes, and More

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE video webinar with Q&A


Conducted on Thursday, May 13, 2021

Recorded event now available

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Course Materials

This CLE course will provide ERISA counsel and advisers an in-depth analysis of Final Section 4960 regulations on executive compensation rules and tax-exempt organizations' challenges. The panel will discuss the excise tax for certain organizations, aggregation rules, the 50 percent test for related groups, excess remuneration parachute payments, reporting requirements, and key planning techniques for structuring executive compensation for tax-exempt organizations.

Description

Deferred compensation and other executive compensation plans and arrangements for tax-exempt organizations differ from those of for-profit entities. Section 4960 imposes an excise tax on tax-exempt organizations that pay excessive compensation to certain employees. ERISA counsel must understand complex tax rules, reporting requirements, and available planning techniques when structuring executive compensation for tax-exempt organizations.

On Jan. 19, 2021, the IRS published Final Regulations interpreting the excise tax under Section 4960 on certain executive compensation paid by tax-exempt organizations. Under Section 4960, a tax-exempt organization may be subject to a 21 percent excise tax on excessive compensation paid to employees if such compensation exceeds one million dollars during the tax year or the aggregate present values of an individual's separation payments and benefits equals or exceeds three times their five-year average pay.

Applying Section 4960 involves identifying entities and employees subject to these rules and how parachute payments and aggregation rules can determine if any compensation exceeds the threshold. The final regulations provide several items for tax-exempt organizations subject to the rules, such as the 50 percent percent test for related organizations, covered employees with a few exceptions, and special timing rules for remuneration, amongst other key provisions.

Listen as our panel discusses the application of Section 4960, guidance provided under the final regulations, and practical methods to avoid the 21 percent excise tax.

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Outline

  1. An overview of final Section 4960 regulations
  2. Entities and employees subject to Section 4960
  3. Aggregation rules
  4. Excess parachute payments
  5. Reporting requirements
  6. Best practices in structuring executive compensation for tax-exempt entities

Benefits

The panel will review these and other key issues:

  • Key provisions of Final Section 4960 regulations
  • Recognizing the differences in structuring executive compensation arrangements for tax-exempt vs. taxable entities
  • Understanding the dynamics of Section 4960 and the 21 percent excise tax
  • Determining what entities and employees are subject to Section 4960
  • Excess parachute payments and the 21 percent excise tax
  • Aggregation rules and key tax planning considerations
  • Practical techniques for structuring executive compensation for nonprofit organizations

Faculty

Huffman, James
James R. Huffman

Attorney
Proskauer Rose

Mr. Huffman counsels public and private companies on their employee benefits plans and executive compensation...  |  Read More

Safra, Seth
Seth J. Safra

Partner
Proskauer Rose

Mr. Safra advises clients on compensation and benefit programs. His experience covers a broad range of retirement plan...  |  Read More

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