Although to date, the new administration has not been successful in moving forward its legislative agenda, it has aggressively pursued its goal of reducing the regulatory burden on American businesses.
At the 2017 Global Equity Organization National Equity Compensation Forum, Baker McKenzie will be discussing the latest regulatory and legislative developments in executive compensation. Some of the hottest topics on every company’s mind we will be addressing include:
The Department of Labor Fiduciary Rule – Where Do We Stand?
The DOL recently notified a Minnesota district court that it had submitted to the Office of Management and Budget proposed amendments to three exemptions, including an extension of transition period and delay of applicability dates from January 1, 2018 to July 1, 2019 for the Department’s fiduciary rule. This was to be followed by the publication of the proposal in the August 10, 2017 Federal Register.
Under ERISA Section 3(21), one is a fiduciary with respect to a plan to the extent that one:
- Exercises discretionary authority or control respecting the management of the plan or exercises any authority or control respecting the management or disposition of its assets;
- Renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or has any authority or responsibility to do so; or
- Has discretionary authority or responsibility in the administration of the plan.
It is clause 2 of the above definition that the DOL’s fiduciary rule concerns. The fiduciary rule essentially expands what is considered the provision of investment advice triggering fiduciary status such that any one who makes an investment recommendation with respect to an ERISA plan or an IRA needs to be concerned that he/she might be an ERISA fiduciary.
Earlier this year, the DOL issued a final rule which provided for a June 9, 2017 applicability date for the fiduciary rule and a transition period of June 9 through January 1, 2018 for its full implementation. Only a portion of the rule, that is, the Impartial Conduct Standards, are in place during the transition period. The proposed extension of the transition period appears to suggest that the Impartial Conduct Standards would continue to apply through the proposed extended transition period ending July 1, 2019.
Notably, several bills, including the proposed Financial Choice Act, have been introduced in Congress which would repeal the fiduciary rule.
Tax Reform Proposals & Potential Changes to Dodd-Frank
Another development we are closely watching is the new administration’s tax reform proposals and potential changes to Dodd-Frank’s executive compensation provisions, including the repeal of the CEO Pay Ratio Rule, among other things.
The administration’s outline of its 2017 tax reform proposals includes a reduction from seven to three individual income tax rates, with the top federal individual income tax rate being 35%, as well as a reduction in the federal corporate income tax rate to 15%. This change alone, if implemented, would, for individuals, make deferral of income to future years less desirable, and companies may want to consider strategies to accelerate corporate deductions into high income tax rate years.
Although the CEO pay ratio rule presents an excellent target for regulatory review and repeal, given the uncertainty calendar year companies should continue to work on their pay ratio calculations.
The impact of these developments on executive compensation now and over the next several years is yet to be determined, so stay tuned for more developments!