The Advisors' Blog

This Morgan Lewis blog addresses when a company may be required to register plan interests under a nonqualified deferred compensation plan. It explains that, under decades-old SEC guidance, the interests of participants in an employee benefit plan constitute “securities” subject to the registration requirements when a plan is both “voluntary” and “contributory.” 

– Voluntary plans are plans in which the employees have a choice as to whether to participate, as such choice constitutes an investment decision to participate in the plan. By contrast, if participation in a plan is mandatory, no choice (and thus no investment decision) is made.
– Contributory plans are plans in which employees decide to contribute a portion of their earnings or savings to a plan. If a plan consists only of contributions made by the employer without the participants giving up anything to which they would otherwise be entitled, the plan is noncontributory.

Note that one factor that does not change the analysis is whether the plan is a defined benefit plan or defined contribution plan, as both can be contributory.

The blog goes on to address what registration of plan interests entails:

Where plan interests are deemed to be securities, and thus registration under the Securities Act is required absent an applicable exemption (as discussed below), companies register on Form S-8 interests in the plan, rather than a fixed number of shares as a company would do for an equity incentive plan. The Form S-8 will register a dollar amount of plan interests as unsecured debt obligations of the company. The general requirement of Form S-8 is to provide a description of the securities offered; however, this does not apply to plan interests in a deferred compensation plan.

As with an equity incentive plan, registration on Form S-8 also requires the distribution (but not the filing with the SEC) of a prospectus to participants that includes material information about the plan, including its eligibility and contribution rules, investment terms, and tax effects.

This is addressed further in our Form S-8 Handbook, which we make available to members of CompensationStandards.com under our Form S-8 Practice Area. The Handbook includes this “word to the wise” — keep this in mind when looking at “precedent” for Form S-8:

There might not be a more murky area of securities law than Form S-8. Because this area is so challenging, bear in mind that there are varying degrees of compliance for Form S-8s. And even within the zone of compliance, there are also varying degrees of legitimate interpretation—so we typically do not take much comfort from what others are doing (or not doing).

– Meredith Ervine