Two senators introduced a bill that would increase oversight on non-qualified deferred compensation plans, or executive retirement plans, and limit tax benefits for deferred compensation.
Sen. Bernie Sanders, I-Vt., a presidential candidate, and Sen. Chris Van Hollen, D-Md., introduced the CEO and Worker Pension Fairness Act on Feb. 27. The bill would include deferred compensation in taxable income when it vests rather than at distribution and direct all revenue it raises to the Pension Benefit Guaranty Corp. to help shore up multiemployer pension funds. The bill would raise around $15 billion over 10 years, according to a bill summary. The tax code would be revised to require non-qualified deferred compensation and equity-based compensation be taxable when there is "no substantial risk of forfeiture."
"It is outrageous that a corporate executive in America can get unlimited, special tax privileges on hundreds of millions of dollars in savings, while an ordinary worker can only get tax deferment of up to $19,500 on a 401(k)," Mr. Sanders said in a news release. "We are going to end these tax breaks for CEOs and use that money to protect 1.7 million workers who are worried about a decent retirement as they face instability in their current pension plans."
The bill was unveiled the same day as a U.S. Government Accountability Office report on the subject was published. The GAO report found that as of 2017, more than 400 of the large public companies in the S&P's 500 stock market index offered executive retirement plans to almost 2,300 of their top executives, totaling about $13 billion in accumulated benefit promises.
Moreover, the Internal Revenue Service and Department of Labor currently insufficiently monitor non-qualified deferred compensation plans, the GAO said. In its report, the GAO made four recommendations, including that the IRS improve its instructions for auditing companies that offer these plans, and that the Labor Department consider modifying reporting by companies to better describe participants in these plans. The IRS and Labor Department neither agreed nor disagreed with its recommendations, the GAO said.
In the senators' bill, both the IRS and Labor Department would be required to take up the GAO's recommendations.
Lastly, the bill would increase disclosure around and oversight of non-qualified deferred compensation by requiring that such compensation disclosed on Form W-2 be mandatory, rather than voluntary, as it is under current regulations, the summary noted.
In a letter to the senators Monday, the National Venture Capital Association voiced its opposition. The group said the bill would tax the "phantom value" of non-qualified stock options and restricted stock units before any actual value is received, which would create a barrier to providing incentive-based equity compensation for employees and hurt the building of high-growth startups.
"Growth company stock valuations can be quite volatile, so these taxes could be paid on income that may never be realized," Bobby Franklin, president and CEO at the NVCA, said in a news release. Decoupling taxation from the receipt of income is a radical, devastating and inexplicable change to the taxation of equity-based compensation that will create a powerful bias against workers with less wealth and against smaller companies who can't afford to pay large salaries."
The bill's passage is unlikely in a divided Congress.