U.S. tax reform – retirement plan provisions finalized

By Michael Curto and Stacey Grundman on Posted in US, US retirement plans

The tax reform bill is done.  President Trump signed the bill on December 22, meeting his deadline for completion by Christmas.

While there is much to be said about the Tax Cuts and Jobs Act (the “Act”), the update on the retirement plan provisions is relatively unexciting.  Recall that when the tax reform process started, there was a lot of buzz about “Rothification” and other reductions to the tax advantages of retirement savings plans.  For now, that pot of potential tax savings remains untapped (perhaps to pay for tax cuts in the future).  Nonetheless, the Act that emerged from the Conference Committee reconciliation continues to include a section entitled “Simplification and Reform of Savings, Pensions, Retirement”. The provisions that remain are effective on December 31, 2017.

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New UK Public Register names and shames corporate governance offenders

By Squire Patton Boggs on Posted in Executive Remuneration

Over one in five companies in the FTSE All Share index received at least 20% shareholder votes against a resolution at their 2017 AGM, or chose to withdraw a resolution. And executive pay remains a key issue for investors, with 38% of resolutions that in 2017 received significant votes against or were withdrawn related to annual remuneration reports, remuneration policies or other remuneration related resolutions.

This information comes from the Investment Association’s newly published Public Register of listed companies who have faced significant shareholder rebellions or withdrawn resolutions. As part of its response to the 2017 consultation on corporate governance reform, the government asked the IA to proceed with putting together the Public Register. The aim is to highlight companies which have received significant votes against a resolution, or withdrawn a resolution, and how they have responded to shareholder concerns.

The requirement to explain how a company intends to respond to votes against a resolution has been part of the corporate governance landscape since 2013. Substantial reforms to the directors’ remuneration reporting (DRR) regime introduced then included a requirement for companies who received a significant vote against a remuneration resolution to publish the reasons for that vote and the actions the company intended to take to respond to shareholder concerns. The DRR regime did not specify what “substantial” meant, but guidance published by the GC100 stated that it should mean at least 20% of votes cast against. This figure is proposed to be formally adopted as part of the changes which the FRC is consulting on making to the Corporate Governance Code.

The Public Register is likely to be a useful barometer for all issues on shareholders’ radar, both in the executive remuneration sphere and beyond, as it lists all affected resolutions and not only those related to remuneration. And it will be very useful for anyone looking to write their next article on Fat Cats!

U.S. tax reform – retirement plan differences to be reconciled

By Michael Curto and Stacey Grundman on Posted in US retirement plans

Now that the House of Representatives and the Senate have passed their own versions of H.R. 1, the Tax Cuts and Jobs Act, a tug-of-war on a compromise that both bodies can pass is in full force.  Congress is following the normal legislative process by setting up a Conference Committee to reconcile the differences between the two competing bills – as each chamber must pass identical bills before it can go to the President for his signature.   While this tug-of-war officially is between the members of the House and Senate appointed to the Conference Committee, informal, behind-the-scenes negotiations are likely to have an outsized impact on the contest.

The differences in the retirement plan provisions will not make any splashy headlines, but they are, nonetheless, worth noting.  Continue Reading

The FRC puts the UK Corporate Governance Code on a diet

By Squire Patton Boggs on Posted in Executive Remuneration

The Financial Reporting Council has published for consultation its review of the UK Corporate Governance Code.  This follows a fundamental review, with the proposed revised Code being a slim shadow of its former self (13 pages instead of 32).  The FRC describes the result as “shortened and sharpened” but the outcome isn’t radical, with the concepts of the unitary board and the “comply or explain” approach being retained.  The revised Code builds on the Government’s conclusions announced in August following its consultation on Corporate Governance Reform but also on a variety of other sources including the BEIS select committee report from earlier this year and the FRC’s own 2016 report on corporate culture.  There may also be a hint of influence from the Investment Association’s agenda in there as well.  Since this is a remuneration and benefits blog, we’ll concentrate on those aspects of the new Code in this post.  Continue Reading

Tottenham Hotspur FC 2 : 0 HM Revenue & Customs

By Squire Patton Boggs on Posted in Employment Tax, Labor & Employment

Football, football teams, footballers, footballer’s pay… a comprehensive review of the case law on the taxation of termination payments… this one has got it all!

The match… the case (HM Revenue & Customs v Tottenham Hotspur Limited) concerns termination payments made to Peter Crouch and Wilson Palacios. The facts are relatively straightforward. Both player’s contracts with Tottenham Hotspur were for a fixed term and could only be terminated by mutual consent. Both contracts were terminated early (by mutual consent) when both players moved to Stoke City during the 2011 summer transfer window.  Both players received lump sum termination payments from Tottenham as part of overall transfer arrangements.

HMRC, arguing that the lump sums paid to Crouch and Palacios were “from an employment”, determined that both income tax and national insurance contributions (NICs) were due. Tottenham disagreed and appealed against the determinations.

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Tax reform progress – retirement plans still safe?

By Michael Curto and Stacey Grundman on Posted in US retirement plans

The U.S. House of Representatives passed the “Tax Cut and Jobs Act” (H.R. 1) last Thursday without, unsurprisingly, any Democratic support.  The retirement plan provisions in the bill haven’t changed. No eleventh-hour revenue-grabbing effort to convert all 401(k) plan contributions to Roth contributions or to place substantial limits on pre-tax plan contributions.  But there are still opportunities to do so if the need for additional revenue offsets arises.

There was additional action on Thursday night – the Senate Finance Committee approved its version of the tax reform bill.  The Committee removed two of the retirement savings provisions from the earlier version of the Senate bill: the application of the 10% early withdrawal tax to governmental section 457(b) plans and the elimination of catch-up contributions for high-wage employees, which were described in our last post.  But the big headline out of the Senate is that the bill now includes the repeal of the Affordable Care Act’s individual coverage mandate.  The repeal gives tax writers an additional $338 billion in savings over a decade, which helps offset the bill’s tax cuts and keeps the bill compliant with the Byrd Rule.  It also, of course, creates additional controversy.

The bill, still in discussion form, likely will hit the Senate floor shortly after the Thanksgiving break.  Presumably, there will be legislative language before then – but it’s not clear how long before then.  There is lots of opportunity for legislative mischief in the translation process.  There also is the possibility that the individual mandate repeal gets pulled – in which case, a new revenue source will be needed and retirement savings plans could be in the hot seat again.

Senate proposes changes to retirement savings programs

By Michael Curto and Stacey Grundman on Posted in US retirement plans

Just as they appeared to survive round one of the House tax reform bill released last week, retirement savings programs, such as 401(k) plans and Individual Retirement Accounts, seem to emerge relatively unscathed from the Senate’s tax reform deliberations.  Nonetheless, the Senate Finance Committee’s proposal does include a few changes to these programs. Continue Reading

VAT on pension costs – some good news!

By Squire Patton Boggs on Posted in UK Pensions

It’s a while since we last commented on VAT on pensions but we return with some good news which HMRC have quietly slipped out in updated content to the VAT Manual.

Back in 2014, following the PPG case, HMRC proposed withdrawing their practice of allowing employers to recover VAT on charges on administration costs for DB pensions. The debate over various alternative VAT arrangements has rumbled on since then, with HMRC repeatedly extending the transitional period before their new approach kicked in. It’s fair to say that it was proving very difficult to make the alternatives (such as tripartite contracts, VAT grouping and onward supply of services by the employer to the trustees) work from a legal, tax or regulatory viewpoint.

The updated guidance now confirms that the old practice can continue to be used, including the 70/30 rule of thumb that allows employers to recover 30% of VAT incurred on combined investment and administration services. This does not block the use of other arrangements which may enable an employer to recover more VAT, provided the other issues surrounding their use can be satisfactorily resolved.

Employers and trustees can perhaps breathe a collective sigh of relief that this long running saga now seems to have reached a final conclusion. A final check on the way VAT is recovered on DB schemes may still be appropriate, just to make sure that the optimum arrangements are in place for the future.

Investment Association sets bar for 2018 AGM season

By Squire Patton Boggs on Posted in Executive Remuneration

The Investment Association (IA) has published its annual letter to Remuneration Committee chairs and updated its Principles of Remuneration (the “Principles”), and many companies will need to take action before their 2018 AGM. The IA is encouraging voluntary disclosure of CEO pay ratios in 2018 Directors’ Remuneration Reports, has introduced a new requirement to defer bonuses in excess of 100% of salary and is keeping up the pressure on overall levels of pay.

The remaining changes to the Principles are limited, and for the most part reflect the continued focus on pay restraint and transparency. An interesting addition to the foreword is a specific reference to the Principles being relevant to AIM listed companies – perhaps a shot across the bows for those companies? Continue Reading

U.S. tax reform – 401(k) plans saved from the chopping block?

By Michael Curto and Stacey Grundman on Posted in US retirement plans

For the last few weeks, U.S. tax reform deliberations put 401(k) retirement plans on a roller coaster ride. Rumors abounded, including, for example, whether legislators would impose new contribution caps, or eliminate pre-tax contributions altogether.  Legislators often have targeted the tax-advantaged status of retirement savings plans as a revenue raiser to pay for federal programs and competing tax breaks.  The House Republicans’ release of the Tax Cuts and Jobs Act (the “Act”) on November 2 appears to have stopped the roller coaster – at least temporarily.

The Ways and Means Committee is touting that the “bill retains the popular retirement savings options – such as 401(k)s and Individual Retirement Accounts – as Americans know them today.”  This is clearly the case.  However, claims that there are no changes to 401(k) or other retirement savings plans are not quite accurate.  While the current version of the Act does not lower 401(k) contribution limits or require the Rothification of 401(k) plans as had been rumored, it does contain some changes to retirement savings rules – many of which are pulled from the 2014 tax reform effort spearheaded by former Ways and Means’ Chairman Dave Camp.  Most of these provisions appear to have been included to accelerate the tax inclusion of retirement savings and, as a result, reduce the Act’s price tag. Continue Reading

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