CEO and Worker Pension Fairness Act

II 116TH CONGRESS 2D SESSION S. 3341 To amend the Internal Revenue Code of 1986 to restrict the tax benefits of executive deferred compensation and increase disclosure, and for other purposes. IN THE SENATE OF THE UNITED STATES FEBRUARY 27, 2020 Mr. VAN HOLLEN (for Mr. SANDERS (for himself and Mr. VAN HOLLEN)) in- troduced the following bill; which was read twice and referred to the Com- mittee on Finance A BILL To amend the Internal Revenue Code of 1986 to restrict the tax benefits of executive deferred compensation and increase disclosure, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘CEO and Worker Pen- 4 sion Fairness Act’’. 5 SEC. 2. NONQUALIFIED DEFERRED COMPENSATION. 6 (a) IN GENERAL.—Section 409A of the Internal Rev- 7 enue Code of 1986 is amended to read as follows: 8 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 2 •S 3341 IS ‘‘SEC. 409A. NONQUALIFIED DEFERRED COMPENSATION. 1 ‘‘(a) IN GENERAL.—Except as otherwise provided in 2 subsection (c), any compensation which is deferred under 3 a nonqualified deferred compensation plan shall be includ- 4 ible in the gross income of the person who performed the 5 services to which such compensation relates in the cal- 6 endar year when there is no substantial risk of forfeiture 7 of the rights of such person to such compensation. 8 ‘‘(b) DEFINITIONS.—For purposes of this section— 9 ‘‘(1) SUBSTANTIAL RISK OF FORFEITURE.—The 10 rights of a person to compensation shall be treated 11 as subject to a substantial risk of forfeiture only if 12 such person’s rights to such compensation are condi- 13 tioned upon the future performance of substantial 14 services by any person. Such rights shall not be 15 treated as subject to a substantial risk of forfeiture 16 solely by reason of a covenant not to compete or the 17 occurrence of a condition related to a purpose of the 18 compensation other than the future performance of 19 services. 20 ‘‘(2) NONQUALIFIED DEFERRED COMPENSA- 21 TION PLAN.—The term ‘nonqualified deferred com- 22 pensation plan’ means any plan which provides for 23 the deferral of compensation, other than— 24 ‘‘(A) a qualified employer plan, 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 3 •S 3341 IS ‘‘(B) any bona fide vacation leave, sick 1 leave, compensatory time, disability pay, or 2 death benefit plan, and 3 ‘‘(C) any other plan or arrangement des- 4 ignated by the Secretary consistent with the 5 purposes of this section. 6 ‘‘(3) QUALIFIED EMPLOYER PLAN.—The term 7 ‘qualified employer plan’ means any plan, contract, 8 pension, account, or trust described in section 9 408(p)(2)(D)(ii) or a simple retirement account 10 (within the meaning of section 408(p)). 11 ‘‘(4) PLAN INCLUDES ARRANGEMENTS, ETC.— 12 The term ‘plan’ includes any agreement or arrange- 13 ment, including an agreement or arrangement which 14 includes only 1 person. 15 ‘‘(5) EXCEPTION.—Compensation shall not be 16 treated as deferred if the service provider receives 17 payment of such compensation not later than 21⁄2 18 months after the end of the taxable year of the serv- 19 ice recipient during which the right to the payment 20 of such compensation is no longer subject to a sub- 21 stantial risk of forfeiture. 22 ‘‘(6) TREATMENT OF EARNINGS.—References to 23 deferred compensation shall be treated as including 24 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 4 •S 3341 IS references to income (whether actual or notional) at- 1 tributable to such compensation or such income. 2 ‘‘(7) TREATMENT OF QUALIFIED STOCK.—An 3 arrangement under which an employee may receive 4 qualified stock (as defined in section 83(i)(2)) shall 5 not be treated as a nonqualified deferred compensa- 6 tion plan with respect to such employee solely be- 7 cause of such employee’s election, or ability to make 8 an election, to defer recognition of income under sec- 9 tion 83(i). 10 ‘‘(8) AGGREGATION RULES.—Except as pro- 11 vided by the Secretary, rules similar to the rules of 12 subsections (b) and (c) of section 414 shall apply. 13 ‘‘(c) TREATMENT OF EQUITY-BASED COMPENSA- 14 TION.— 15 ‘‘(1) IN GENERAL.—Except as provided in para- 16 graph (7), subsection (a) shall not apply to any eq- 17 uity-based compensation, and such equity-based 18 compensation shall be includible in income as pro- 19 vided in paragraphs (2) through (6). 20 ‘‘(2) PLAN FAILURES.— 21 ‘‘(A) GROSS INCOME INCLUSION.— 22 ‘‘(i) IN GENERAL.—If at any time 23 during a taxable year a nonqualified de- 24 ferred compensation plan— 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 5 •S 3341 IS ‘‘(I) fails to meet the require- 1 ments of paragraphs (3), (4), and (5), 2 or 3 ‘‘(II) is not operated in accord- 4 ance with such requirements, 5 all equity-based compensation deferred 6 under the plan for the taxable year and all 7 preceding taxable years shall be includible 8 in gross income for the taxable year to the 9 extent not subject to a substantial risk of 10 forfeiture and not previously included in 11 gross income. 12 ‘‘(ii) APPLICATION ONLY TO AF- 13 FECTED PARTICIPANTS.—Clause (i) shall 14 only apply with respect to all compensation 15 deferred under the plan for participants 16 with respect to whom the failure relates. 17 ‘‘(B) INTEREST AND ADDITIONAL TAX 18 PAYABLE WITH RESPECT TO PREVIOUSLY DE- 19 FERRED EQUITY-BASED COMPENSATION.— 20 ‘‘(i) IN GENERAL.—If equity-based 21 compensation is required to be included in 22 gross income under subparagraph (A) for 23 a taxable year, the tax imposed by this 24 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 6 •S 3341 IS chapter for the taxable year shall be in- 1 creased by the sum of— 2 ‘‘(I) the amount of interest deter- 3 mined under clause (ii), and 4 ‘‘(II) an amount equal to 20 per- 5 cent of the equity-based compensation 6 which is required to be included in 7 gross income. 8 ‘‘(ii) INTEREST.—For purposes of 9 clause (i), the interest determined under 10 this clause for any taxable year is the 11 amount of interest at the underpayment 12 rate plus 1 percentage point on the under- 13 payments that would have occurred had 14 the deferred equity-based compensation 15 been includible in gross income for the tax- 16 able year in which first deferred or, if 17 later, the first taxable year in which such 18 compensation is not subject to a substan- 19 tial risk of forfeiture. 20 ‘‘(3) DISTRIBUTIONS.— 21 ‘‘(A) IN GENERAL.—The requirements of 22 this paragraph are met if the plan provides that 23 equity-based compensation deferred under the 24 plan may not be distributed earlier than— 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 7 •S 3341 IS ‘‘(i) separation from service as deter- 1 mined by the Secretary (except as provided 2 in subparagraph (B)(i)), 3 ‘‘(ii) the date the participant becomes 4 disabled (within the meaning of subpara- 5 graph (C)), 6 ‘‘(iii) death, 7 ‘‘(iv) a specified time (or pursuant to 8 a fixed schedule) specified under the plan 9 at the date of the deferral of such com- 10 pensation, 11 ‘‘(v) to the extent provided by the 12 Secretary, a change in the ownership or ef- 13 fective control of the corporation, or in the 14 ownership of a substantial portion of the 15 assets of the corporation, or 16 ‘‘(vi) the occurrence of an unforesee- 17 able emergency. 18 ‘‘(B) SPECIAL RULES.— 19 ‘‘(i) SPECIFIED EMPLOYEES.—In the 20 case of any specified employee, the require- 21 ment of subparagraph (A)(i) is met only if 22 distributions may not be made before the 23 date which is 6 months after the date of 24 separation from service (or, if earlier, the 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 8 •S 3341 IS date of death of the employee). For pur- 1 poses of the preceding sentence, a specified 2 employee is a key employee (as defined in 3 section 416(i) without regard to paragraph 4 (5) thereof) of a corporation any stock in 5 which is publicly traded on an established 6 securities market or otherwise. 7 ‘‘(ii) UNFORESEEABLE EMER- 8 GENCY.—For purposes of subparagraph 9 (A)(vi)— 10 ‘‘(I) IN GENERAL.—The term 11 ‘unforeseeable emergency’ means a se- 12 vere financial hardship to the partici- 13 pant resulting from an illness or acci- 14 dent of the participant, the partici- 15 pant’s spouse, or a dependent (as de- 16 fined in section 152(a)) of the partici- 17 pant, loss of the participant’s property 18 due to casualty, or other similar ex- 19 traordinary and unforeseeable cir- 20 cumstances arising as a result of 21 events beyond the control of the par- 22 ticipant. 23 ‘‘(II) LIMITATION ON DISTRIBU- 24 TIONS.—The requirement of subpara- 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 9 •S 3341 IS graph (A)(vi) is met only if, as deter- 1 mined under regulations of the Sec- 2 retary, the amounts distributed with 3 respect to an emergency do not exceed 4 the amounts necessary to satisfy such 5 emergency plus amounts necessary to 6 pay taxes reasonably anticipated as a 7 result of the distribution, after taking 8 into account the extent to which such 9 hardship is or may be relieved 10 through reimbursement or compensa- 11 tion by insurance or otherwise or by 12 liquidation of the participant’s assets 13 (to the extent the liquidation of such 14 assets would not itself cause severe fi- 15 nancial hardship). 16 ‘‘(C) DISABLED.—For purposes of sub- 17 paragraph (A)(ii), a participant shall be consid- 18 ered disabled if the participant— 19 ‘‘(i) is unable to engage in any sub- 20 stantial gainful activity by reason of any 21 medically determinable physical or mental 22 impairment which can be expected to result 23 in death or can be expected to last for a 24 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 10 •S 3341 IS continuous period of not less than 12 1 months, or 2 ‘‘(ii) is, by reason of any medically de- 3 terminable physical or mental impairment 4 which can be expected to result in death or 5 can be expected to last for a continuous 6 period of not less than 12 months, receiv- 7 ing income replacement benefits for a pe- 8 riod of not less than 3 months under an 9 accident and health plan covering employ- 10 ees of the participant’s employer. 11 ‘‘(4) ACCELERATION OF BENEFITS.— 12 ‘‘(A) IN GENERAL.—The requirements of 13 this paragraph are met if the plan does not per- 14 mit the acceleration of the time or schedule of 15 any payment of equity-based compensation 16 under the plan, except as provided in regula- 17 tions by the Secretary. 18 ‘‘(B) EXCEPTION.—A plan shall not be 19 treated as failing to meet the requirement of 20 subparagraph (A) solely because the plan terms 21 permit the removal of participants who are or 22 become ineligible to participate in the plan, and 23 to distribute the benefits of such participants to 24 another qualified retirement plan (as defined in 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 11 •S 3341 IS section 4974(c)) of the participants, if such re- 1 moval is necessary to maintain the plan’s ex- 2 emption from the provisions of the Employee 3 Retirement Income Security Act of 1974. 4 ‘‘(5) ELECTIONS.— 5 ‘‘(A) IN GENERAL.—The requirements of 6 this paragraph are met if the requirements of 7 subparagraphs (B) and (C) are met. 8 ‘‘(B) INITIAL DEFERRAL DECISION.— 9 ‘‘(i) IN GENERAL.—The requirements 10 of this subparagraph are met if the plan 11 provides that equity-based compensation 12 for services performed during a taxable 13 year may be deferred at the participant’s 14 election only if the election to defer such 15 compensation is made not later than the 16 close of the preceding taxable year or at 17 such other time as provided in regulations. 18 ‘‘(ii) FIRST YEAR OF ELIGIBILITY.— 19 In the case of the first year in which a 20 participant becomes eligible to participate 21 in the plan, such election may be made 22 with respect to services to be performed 23 subsequent to the election within 30 days 24 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 12 •S 3341 IS after the date the participant becomes eli- 1 gible to participate in such plan. 2 ‘‘(iii) PERFORMANCE-BASED COM- 3 PENSATION.—In the case of any equity- 4 based compensation which is performance- 5 based and is based on services performed 6 over a period of at least 12 months, such 7 election may be made no later than 6 8 months before the end of the period. 9 ‘‘(C) CHANGES IN TIME AND FORM OF DIS- 10 TRIBUTION.—The requirements of this subpara- 11 graph are met if, in the case of a plan which 12 permits under a subsequent election a delay in 13 a payment or a change in the form of payment 14 of equity-based compensation— 15 ‘‘(i) the plan requires that such elec- 16 tion may not take effect until at least 12 17 months after the date on which the elec- 18 tion is made, 19 ‘‘(ii) in the case of an election related 20 to a payment not described in clause (ii), 21 (iii), or (vi) of paragraph (2)(A), the plan 22 requires that the payment with respect to 23 which such election is made be deferred for 24 a period of not less than 5 years from the 25 VerDate Sep 11 2014 23:06 Feb 28, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S3341.IS S3341 kjohnson on DSK79L0C42PROD with BILLS 13 •S 3341 IS date such payment would otherwise have 1 been made, and 2 ‘‘(iii) the plan requires that any elec- 3 tion related to a payment described in 4 paragraph (2)(A)(iv) may not be made less 5 than 12 months prior to the date of the 6 first scheduled payment under such para- 7 graph. 8 ‘‘(6) RULES RELATING TO FUNDING.—For pur- 9 poses of this subsection— 10 ‘‘(A) OFFSHORE PROPERTY [Text truncated for display. 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