American Recovery and Reinvestment Act of 2009: Impact on Executive Compensation and Employee Benefits
On February 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (the Act). The Act includes a number of provisions that significantly impact executive compensation and employee benefits, including restrictions applicable to an expanded group of companies participating in the Troubled Asset Relief Program (TARP).
Regarding executive compensation, the Act:
- expands the $500,000 compensation deduction limit applicable to publicly traded corporations participating in TARP to cover any publicly traded TARP corporation (non-TARP publicly traded corporations are still subject to the $1 million annual deduction limit for compensation paid to the chief executive officer, chief financial officer, and the three other highest paid officers);
- broadens the scope of recovery of any bonus, retention award, or incentive compensation paid to a senior executive officer based on materially inaccurate financial statements to include not only the five most senior executive officers, but also the next 20 most highly compensated employees of the TARP participant;
- expands the prohibition on golden parachute payments to the five most highly compensated employees of a TARP participant (whether or not a senior executive officer); and
- prohibits a TARP participant from paying or accruing any bonus, retention award, or incentive compensation to at least the 25 most highly compensated employees, subject to a phase-in determined by the amount of financial assistance received by the TARP participant.
Regarding employee benefits, the Act:
- includes a COBRA premium subsidy of up to 65% for up to 9 months for certain employees (and their qualified beneficiaries) who are involuntarily terminated between September 1, 2008 and December 31, 2009, reduced for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return), and not available for taxpayers whose modified adjusted gross income exceeds $145,000 ($290,000 in the case of a joint return) (effective March 1, 2009);
- the notice of COBRA continuation coverage must also include notice of the available COBRA premium subsidy;
- certain unemployed workers have an additional 60 days to elect subsidized COBRA continuation coverage;
- COBRA-subsidized persons may elect to change their COBRA continuation coverage to a different plan if permitted by the employer;
- the COBRA premium subsidy is recaptured from high income taxpayers (with a complete recapture when the individual's modified adjusted gross income exceeds $145,000 ($290,000 for joint returns));
- the COBRA premium subsidy is not included in the recipient's gross income;
- an individual receiving a COBRA premium subsidy is not eligible for the health coverage tax credit; and
- individuals denied a COBRA premium subsidy may seek an expedited (15-day) review of the denial from the Department of Labor.
- increases the health coverage tax credit from 65% to 80% of the taxpayer's premiums for qualified health insurance of the taxpayer and qualifying family members (effective May 1, 2009);
- provides for continued qualification of family members for the health coverage tax credit after certain events, such as divorce, death, or becoming eligible for Medicare; however, the continued qualification is not applicable for months beginning after December 31, 2010 (effective January 1, 2010);
- modifies the definition of eligible Trade Adjustment Assistance (TAA) recipient to eliminate the requirement that an individual receiving unemployment compensation be enrolled in training; however, the modification is not applicable for months beginning after December 31, 2010 (effective March 1, 2009); and
- increases the monthly exclusion for employer-provided transit passes and vanpooling (currently $120 a month) to the same level as the exclusion for employer-provided parking (currently $230 a month) (effective March 1, 2009).
If you have any questions about how these changes may affect your business or personal situation, please contact Jim Karas of Riker Danzig's Employee Benefits and Executive Compensation Group.