– Broc Romanek, CompensationStandards.com

I continue to see so many people citing the SEC’s Regulatory Flexible Agenda as an indication for when the agency will propose and adopt rules. Don’t believe that – it’s not true! As I’ve blogged about before, all kinds of whacky and aspirational stuff makes it into the Reg Flex Agenda, which then winds up as part of the OMB Unified Agenda (in this blog, Keith Bishop explains what the OMB Unified Agenda is). And then the timelines for proposing & adopting rules are rarely accurate.

The internal process at the SEC (and other agencies) is complicated – maybe one day I’ll explain it in detail (eg. pet projects get thrown in that have zero chance of moving; timelines thrown in simply to fill out the form). But trust me, it has NEVER been a reliable source for when things might move at the SEC. But go ahead and keep citing it if it makes you happy – even though it will likely prove you wrong in the end (as it does over and over). I find it funny how the Reg Flex Agenda is now a newsworthy item after being completely ignored for decades.

I mention all this because the latest Reg Flex Agenda is now out and it indicates that adoption of pay ratio, investment managers pay voting disclosures and hedging rules won’t happen until April ’16 (the prior Reg Flex Agenda said October ’15) – with clawback rules being proposed by April ’16. There is no timeline for adopting pay-for-performance rules included since that rulemaking’s comment period is still open. Of course, remember that this is all pulp fiction…

– Broc Romanek, CompensationStandards.com

I’ve posted a bunch of memos on this development that’s covered in this blog by William Tysse:

In a Chief Counsel Memorandum issued last month, the IRS concluded that an executive retention arrangement violated Section 409A despite the employer’s efforts to correct the arrangement before the retention bonus vested.

The arrangement in question provided for a retention bonus that vested after 3 years of employment and was then payable over the two years after vesting. However, under the terms of the arrangement, the employer had the discretion to accelerate the payments and pay them in a lump sum on the first anniversary of the vesting date. The employer, recognizing that the arrangement failed to comply with Section 409A’s anti-acceleration rule, attempted to correct the arrangement by amending it to remove the employer’s ability to accelerate the payments. The amendment was made in the same taxable year in which the retention bonus vested, but before the actual vesting date.

The IRS ruled that the correction was ineffective because it occurred in the same year in which the retention bonus vested. The ruling is consistent with the IRS’s proposed Section 409A income inclusion regulations, which provide limited relief for corrections of Section 409A errors that occur before the year in which the deferred compensation vests, provided the correction is not part of pattern or practice to avoid Section 409A. Interestingly, the employer in question may have been able to correct the error in this case under the more formal correction procedure for 409A document failures set forth in Notice 2010-6.

The memorandum is a reminder that the options for correcting Section 409A problems after arrangements have been put in place are limited and few, and therefore retention agreements, long-term incentive agreements, employment agreements, severance agreements, change in control agreements and the like, all of which may be subject to Section 409A, should be reviewed for Section 409A compliance issues prior to adoption.